Question

TLM

6. Work It Out. Tina is the sole owner of Tina's Lawn Mowing, Incorporated (TLM). In one year, TLM collects $1,000,000 from customers to mow their lawns. TLM's equipment depreciates in value by $125,000. TLM pays $600,000 to its workers, who pay $140,000 in taxes on this income. TLM pays $50,000 in corporate income taxes and pays Tina a dividend of $150,000. Tina pays taxes of $60,000 on this dividend income. TLM retains $75,000 of earnings in the business to finance future expansion. How much does this economic activity contribute to each of the following? a. GDP b. NNP c. National income d. Compensation of employees e. Proprietors' income f. Corporate profits g. Personal income h. Disposable personal income C ider an economy that

Answer 1

1. The total contribution to GDP will be $1,000,000 as it the value which an individual get from selling the goods and services. So, contribution to GDP is $1,000,000.

2. Net National Product = GDP – Depreciation.

                                   = 1,000,000 – 125,000.

                                    = $875,000.

Thus, NNP = $875,000.

3. Since there is no more wasteful expenditure other than the depreciation so:

National Product = Net National Product = $875,000.

Thus, NP = $875,000.

4. Compensation to employees = Wages + salaries(cash or kind) + Employer contribution to various schemes for employees + Pensions

Compensation to employees = $600,000.

Thus, Compensation to workers is $600,000.

5. Since there is an individual owner of the lawn mowing and it is incorporated as TLM. So the proprietor income in this case will be $0.

Thus, proprietors’ income is $0.

6. Corporate Profit= Income Tax + Dividend + Earnings.

                        = 50,000 + 150,000 + 75,000.

                        = $275,000.

Thus, the Corporate Profit is $275,000.

7. Personal Income = Net National Product + Dividend – Corporate Profits.

                              = 875,000 + 150,000 – 275,000.

                              = $750,000.

Thus, the Personal Income is $750,000.

8. Disposable Personal Income = Personal Income – Tax on Dividend – Tax Paid By Workers.

Disposable Personal Income = 750,000 – 60,000 – 140,000.

                                                = $550,000.

Thus, the disposable personal income would be $550,000.