Question

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.

Answer 1

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)