Question

In: Economics

1. The following is a list of an economy’s National Income Account data for a particular...

1. The following is a list of an economy’s National Income Account data for a particular year (in billions of dollars).

Government Transfer Payments:                                            $16                       Rents:                                 10

Income Receipts from Rest of the World                   27                       Exports:                             14

Income Payments to Rest of the World                      33                       Corporate Profits:          70

Government Purchases Of Goods & Services:      69                        Interest Income:                             12

Personal Income Taxes:                                              38                        Dividends:                         23

Corporate Income Taxes:                                          28                        Imports:                            17

Indirect Business Taxes:                                                            15                        Proprietors’ Income:       25

Social Security Taxes:                                                     8                        Statistical Discrepancy      0        

Undistributed Corporate Profits:                                            19                       

Wages & Salaries:                                                        248                                     

Personal Consumption Expenditures:                     267       

Depreciation (Capital Consumption Allowance): 14

Net Private Domestic Investment:                           47

Calculate GDP, GNP, NNP, National Income, Personal Income and Disposable Personal Income. You should be able to compute GDP using both the expenditures approach and the income approach.

Solutions

Expert Solution

A) Income Approach,

GDP = Wages + Salaries + Rent + Profit + Interest + Dividend

Here Income from interest, dividends, rents and proprietor's income = 12+23 +10+25 = 70

Profits = Undistributed corporate profit + corporate profits = 19+70 = 89

Wages & Salaries = 248

Therefore, GDP = 248+70+89= $407 (million dollars)

GNP = GDP + Direct Taxes + Indirect Taxes + Depreciation +Net factor income abroad

Here Direct Taxes= Personal income taxes +Corporate income taxes + Social security taxes= 38+28+8=74

Depreciation = 14

Here net factor income abroad = income receipts from rest of world- income payments to rest of world= 27-33=-6

Therefore, GNP = 407+74 + 15+ 14-6 = $504 (million dollars)

NNP or national income = GNP-Depreciation = 504-14 = $494 (million dollars)

Personal income = National income + Government Transfer Payments – Corporate Income Taxes- Social Security Taxes-undistributed profits= 494+10-28-8-19= $449 (Million dollars)

Disposable Income = Personal Income-Personal Income Taxes = 449-38= $411 (million dollars)

B) Expenditure approach,

GDP = Personal Consumption expenditure +Investment+Government Expenditure + (Exports-Imports)

Here Net domestic investment = 47, Personal consumption expenditure = 267,

Government Expenditure = Government purchase of goods and services= 69 = 69

Therefore, GDP = 267 + 47 +108+14-17= 419

GNP = GDP + Direct Taxes + Indirect Business Taxes + Depreciation +Net factor income abroad = 419 +74+15+14-6 = $516 (million dollars)

NNP or national income = GNP-Net factor income abroad = 516+6= $522 (million dollars)

Personal Income = National income + Government Transfer Payments – Corporate Income Taxes- Social Security Taxes-undistributed profits= 522+10-28-8-19= $477 (million dollars)

Disposable income = Personal Income- Personal Income Taxes = 477- 38 = $439 (million dollars)


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