Question

You have been hired as a research assistant and are given the following data about another economy

Corporate income tax $20000

Profits $44000

Rent $25000

Indirect business taxes $21000

Business profits $75000

Plant and equipment   $2,400

Net foreign factor imports $-5,900

Interest $22,185

Social security contribution $65,000

Transfer payments $80,000

Wages $900   

Personal taxes $175

Calculate the GDP using the factor payment approach. Show work. ___________________  

Answer 1

The national income is treated to be equal to all the "income accruing to the basic factors of production used in producing the national products". The factors of production are traditionally categorized as land, labor, capital and organization. Accordingly , the national income is treated as the sum of factor payments i,e wages, rent, interest and profits, plus depreciation. Thus,

GDP = Rent + Wages + Interest + Profit + Depreciation

here in this case:

Note:- the below components in " BOLD " will only be accounted for GDP computation

1)Corporate income tax $20000- not included

2)Profits $44000- included

3)Rent $25000- included

4)Indirect business taxes $21000- not included

5)Business profits $75000- included

6)Plant and equipment   $2,400- not included

7)Net foreign factor imports $-5,900- not included

8)Interest $22,185- included

9)Social security contribution $65,000- included, part of Labor income(wages)

10)Transfer payments $80,000- not included

11)Wages $900 - included

12)Personal taxes $175- not included

GDP = Profits $44000+ Rent $25000+Business profits $75000+Interest $22,185+Social security contribution $65,000+Wages $900

=$44000+$25000+$75000+$22,185+$65,000+$900

=$ 2,32,085