Question

Use the table to find GDI, GDP, gross private domestic investment, personal income, and personal disposable income. (All amounts in trillions of dollars.)

Profit	2.8
Indirect business taxes	.8
Rent	.7
Interest	.8
Wages	8.2
Depreciation	1.3
Consumption	11.0
Government spending	1.8
Imports	1.7
Social Security contributions	2.0
Exports	1.5
Government transfer payments	2.0
Personal income taxes and nontax payments	1.7
Corporate taxes and retained earnings	.5

Please discuss what formula you are using to get each one of the answers.

Answer 1

GDI and GDP both give the total value of final goods and services produced within an economy, the former by the Income method and the latter by the Expenditure method. Technically, GDI equals GDP. However, due to statistical discrepency, the values differ slightly.

GDI

Gross Domestic Income (GNI) = Wages + Rent + Interest + Profits + Indirect Taxes + Depreciation

By substituting the values of the variables above from the table given in the question to the formula of GDI, we get the following result –

GDI = 8.2 + 0.7 + 0.8 + 2.8 + 0.8 + 1.3

GDI = $ 14.6 trillion

GDP

Gross Domestic Product (GDP) = C + I + G + Ex – Im

Where C = Consumption, I = Investment, G = Government expenditure, Ex = Exports, Im = Imports

By substituting the values of the variables above from the table given in the question to the formula of GDP, we get the following result –

GDP = 11 + 0 + 1.8 + 1.5 – 1.7

GDP= $ 16 trillion

Gross Private Domestic Investment(GPDI) is a component of GDP and includes businesses' expenditure on inventory, equipment. The question gives no information about the GPDI.

PI

For the values of PI and DI, we need to consider the following calculations of NDP and NI -

Net Domestic Product (NDP) = GDP - Depreciation (GDP calcuated by Expenditure Method is taken)

                                           NDP = 16 – 1.3

                                          NDP = $ 14.7 TRILLION

National Income (NI) = Net Domestic Product (NDP) – Indirect Business Taxes

                                 NI = 14.7 – 0.8

                                 NI = $ 13.9 TRILLION

Now, Personal Income (PI) can be  calculated as follows -

PI = NI – (Corporate Taxes & Retained earnings + Social Security Contributions) + Transfer Payments

PI = 13.9 – (0.5 + 2) + 2

PI = $ 13.4 trillion

DI

Disposable Personal Income (DI) = PI – Personal Taxes

DI = 13.4 – 1.7

DI = $ 11.7 trillion