Question

Personal consumption expenditures	$245
Net foreign factor income	541
Transfer payments	182
Rents	143
Statistical discrepancy	585
Consumption of fixed capital (depreciation)	274
Social security contributions	204
Interest	130
Proprietors’ income	335
Net exports	115
Dividends	160
Compensation of employees	223
Taxes on production and imports	185
Undistributed corporate profits	210
Personal taxes	263
Corporate income taxes	190
Corporate profits	568
Government purchases	732
Net private domestic investment	383
Personal saving	206

1. Using the above data, determine GDP by both the expenditure and the income approaches. Then determine NDP

2. Now determine National Income (NI): first, by making the required additions and subtractions from GDP; and second, by adding up the types of income and taxes that make up NI .

Type or paste question here

Answer 1

Answer :-

(A) GDP is measured by both expenditure and income approach.

Expenditure Approach =

GDP = [$245 (Personal consumption expenditures)] + [$383 (Net private domestic investment) + $274 (Consumption of fixed capital, depreciation) (the sum of these two components measures gross investment = $$657)] + [$732 (Government purchases)] + [$115 (net exports)]

= $245+657+732+115

= $1749

Income approach :-

GDP = $223 (compensation of employees) + $143 (Rents) + $130 (Interest) + $335 (Proprietor's income) + $568 (Corporate profits) + $185 (Taxes on production and imports) +$274 (Consumption of fixed capital, depreciation) - $541 (Net foreign factor income) + $585 (Statistical discrepancy)

= $233+143+130+335+568+185+274-541+585

= $1912

=> NDP = GDP - Depreciation

= $1749 - $274

= $1475

(B)

NI = Wages + Rents + Interest + Profits

Profits = Corporate Profits + Proprietor’s Income

Profit = 568 + 335

Profit = $903

NI = 223 + 143 +130 + 903

so NI = $1399