Consider the following list of data for a country for a given year. Amounts are
ID: 1135664 • Letter: C
Question
Consider the following list of data for a country for a given year.
Amounts are in billions of dollars.
In your answers, you may refer to the items by the abbreviations shown.
Item
Amount
Stock of Capital at end of year (K)
300
Change in Private Inventories (CI)
-1
Compensation of Employees--Wages (W)
50
Consumption (C)
60
Consumption of Fixed Capital--Depreciation (DEPR)
9
Government Consumption and Gross Investment (G)
15
Gross Private Domestic Fixed Investment (FI)
13
Interest (INT)
8
Net Exports (XN)
-2
Profits (PROF)
6
Proprietors’ Income (PRIN)
3
Purchases of Stocks and Bonds (SB)
13
Rents (RENT)
4
Taxes on Production and Income (TAX)
5
1. (a) Compute Gross Private Domestic Investment (I). SHOW YOUR WORK
(b) Compute Gross Domestic Product (GDP) via the “expenditures” approach. Show your work.
2. (a) Compute National Income. Show your work.
(b) Compute Gross Domestic Income (GDI). Show your work.
3. Statistical Discrepancy (SD) is zero. What does that imply regarding the relationship between GDP and GDI? Explain carefully and thoroughly.
4. Two items in the list are negative. How can these items be negative and yet be components of GDP? Could these items be positive and still be components of GDP? Explain carefully and thoroughly.
5. Two items in the list are not components of GDP. Which are the items and why do they not enter GDP? Explain carefully and thoroughly.
Consider the following list of data for a country for a given year.
Amounts are in billions of dollars.
In your answers, you may refer to the items by the abbreviations shown.
Item
Amount
Stock of Capital at end of year (K)
300
Change in Private Inventories (CI)
-1
Compensation of Employees--Wages (W)
50
Consumption (C)
60
Consumption of Fixed Capital--Depreciation (DEPR)
9
Government Consumption and Gross Investment (G)
15
Gross Private Domestic Fixed Investment (FI)
13
Interest (INT)
8
Net Exports (XN)
-2
Profits (PROF)
6
Proprietors’ Income (PRIN)
3
Purchases of Stocks and Bonds (SB)
13
Rents (RENT)
4
Taxes on Production and Income (TAX)
5
Explanation / Answer
GDP (Gross domestic product)= Sum of all market values of final goods and services produced in the country in a year's time.
The Formula is : C+I+G+(Export-Import).
(1). a.Gross private domestic investment (GPDI)= 13-1=12 ( GPDI is a business capital invested in domestic production either through the purchase of fixed property or inventory)
b. GDP=C+I+G+(X-M) [note: I = Investment = 12 as shown above]
Therefore: 60+12+15-2= 85
(2). National income : Now In this case, GDP=National income (NI)
(3). GDP and GDI will be same because there is no income received from abroad or income sent abroad.
(4). Negative items are exports and change in private inventory
Exports can be negative if imports are more than exports. And, change in private inventory means purchased inventory is more goods than sold.
(5). Two item which are not a part of GDP are stock of capital and income tax as stock of capital is already included in the investment earlier and the same is with income tax, which is already included as government spending or government expenditure
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