Question

The following is a list of national income figures for a given year. All figures are in billions. The ensuing question will ask you to determine the major national income measures by both the expenditures and income approaches. The answers derived by each approach should be the same.

Consumption expenditure on durable goods……………………………………………………………..50

Transfer payments………………………………………………………………………………………..12

Rents……………………………………………………………………………………………………..14

Capital consumption allowance (depreciation)…………………………………………………………..27

Social security contribution………………………………………………………………………………20

Interest……………………………………………………………………………………………………21

Proprietors’ income……………………………………………………………………………………….45

Dividends…………………………………………………………………………………………………16

Compensation of employees…………………………………………………………………………….248

Indirect business taxes (taxes on production and imports).………………………………………………18

Undistributed corporate profits…………………………………………………………………………...22

Personal taxes…………………………………………………………………………………………….26

Corporate income taxes…………………………………………………………………………………..19

Consumption expenditure on non-durable goods………………………………………………………..95

Gross private domestic investment………………………………………………………………………62

Exports.……………………………………………………………………………………………………7

Imports….…………………………………………………………………………………………………9

Personal savings………………………………………………………………………………………….16

Corporate profits…………………………………………………………………………………………57

Consumption expenditure on services…………………………………………………………………..143

Federal government purchase of goods and services…………………………………………………….35

State and local government purchases of goods and services…………………………………………....47

***SHOW ALL OF YOUR WORK/CALCULATIONS!

1. Use the above data to determine the GDP by the Expenditure Approach and Income Approache
2. Compute the NDP
3. Compute the NI
4. Compute the DI if PI = $336

Answer 1

1) Computing GDP using Income Approach:

GDP = Compensation of employees + Rent + Interest + Dividends + Undistributed profit + Corporate income tax + Properietor's income + Depreciation + Indirect business taxes

= 248+14+21+16+22+19+45+27+18
= $430 billion.

2) Computing GDP using Expenditure Approach:

GDP = Consumption expenditure on durable goods + Consumption expenditure on non-durable goods + Consumption expenditure on services + Federal government purchase of goods and services + State and local government purchases of goods and services + Gross private domestic investment + Exports - Imports

= 50+95+143+35+47+62+7-9
= $430 billion

3) Computing NDP:

NDP = GDP - Depreciation
= 430-27
= $403 billion.

4) Computing NI:

NI = NDP + Net Factor Income from Abroad
= 403+0 (Net factor income from abroad is not provided)
= $403 billion

5) Computing DI If PI = $336:

DI = PI - Personal Taxes
= 336-26
= $310 billion.