Question

Below is a list of domestic output and national income figures for a certain year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditures and the income approaches. The results you obtain with the different methods should be the same. Value Value $285 12 Category Personal consumption expenditures Net foreign factor income Transfer payments Rents Statistical discrepancy Consumption of fixed capital (depreciation) Social Security contributions Interest Proprietors' income Personal saving Category Net exports Dividends Compensation of employees Taxes on production and imports Undistributed corporate profits Personal taxes Corporate income taxes Corporate profits Government purchases Net private domestic investment Instructions: Enter your answers as whole numbers, a. Using the above data, determine GDP by both the expenditures and the income approaches. Then determine NDP GOP using the expenditures approach

Answer 1

(a)

Using the expenditures approach:

GDP = [Personal consumption expenditures] + [(Net private domestic investment) + (Consumption of fixed capital, depreciation] + [Government purchases] + [net exports]

= $245 + ($33 + $27) + $72 + $11

= $245 + $60 + $72 + $11

= $388 (answer)

Using the income approach:

GDP = (compensation of employees) + (Rents) + (Interest) + (Proprietor's income) + (Corporate profits) + (Taxes on production and imports) + (Consumption of fixed capital, depreciation) - (Net foreign factor income) + (Statistical discrepancy)

= $223 + $14 + $13 + $33 + $56 + $18 + $27 -$4 + $8

= $388 (answer)

NDP = GDP - Consumption of fixed capital (depreciation)

= $388 - $27 = $361 (answer)

(b)

NDP Approach:

National Income = (Net Domestic Product) - (Statistical discrepancy) + (Net foreign factor income)

= $361 - $8 + $4

= $357 (answer)

Income and Taxes Approach:

National Income = (Compensation of employees) + (Rents) + (Interest) + (Proprietor's income) + (Corporate profits) + (Taxes on production and imports)

= $223 + $14 + $13 + $33 + $56 + $18

= $357 (answer)

(c)

Personal Income PI = (National Income) - (Taxes on production and imports) (Social security contributions) - (Corporate income taxes) - (Undistributed corporate profits) + (Transfer payments)

= $357 - $18 - $20 - $19 - $21 + $12

= $291 (answer)

(d)

Disposable Income = (Personal Income) - (Personal Taxes)

= $291 - $26

= $265 (answer)

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