37. Instructions: Enter your answers as whole numbers. a. Using the above data,

Question

37.

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. GDP using the expenditures approach = $ [ ] billion. GDP using the income approach = $ [ ] billion. NDP = $ [ ] 1 billion b. Now determine NI in two ways: first, by making the required additions or subtractions from NDP (method 1): and second, by adding up the types of income and taxes that make up NI (method 2). Method 1 = $ [ ] billion. Method 2 = $ [ ] billion. c. Adjust NI (from part b) as required to obtain PI. PI = $ [ ] billion. d. Adjust PI (from part C) as required to obtain DI. DI = $ [ ] billion.

Explanation / Answer

Part a:

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

The expenditures approach: GDP = [$245 (Personal consumption expenditures)] + [$33 (Net private domestic investment) + $27 (Consumption of fixed capital, depreciation) (the sum of these two components measures gross investment = $60)] + [$72 (Government purchases)] + [$11 (net exports)] = $245 + $60 + $72 + $11 = $388.

The income approach: GDP = $223 (compensation of employees) + $14 (Rents) + $13 (Interest) + $33 (Proprietor's income) + $56 (Corporate profits) + $18 (Taxes on production and imports) + $27 (Consumption of fixed capital, depreciation) - $4 (Net foreign factor income) + $8 (Statistical discrepancy) = $223 + $14 + $13 + $33 + $56 + $18 + $27 -$4 + $8 = $388

Both methods will give us the same answer.

Net Domestic Product equals GDP minus Consumption of fixed capital (depreciation). NDP = $388 - $27 = $361.

Part b:

Now determine NI in two ways: first, by making the required additions or subtractions from NDP; and second, by adding up the types of income and taxes that make up NI.

Net Domestic Product Approach: National Income = $361 (Net Domestic Product) - $8 (Statistical discrepancy) + $4 (Net foreign factor income) = $357.

Income and Taxes Approach: National Income = $223 (Compensation of employees) + $14 (Rents) + $13 (Interest) + $33 (Proprietor's income) + $56 (Corporate profits) + $18 (Taxes on production and imports) = $357.

Part c:

Adjust NI (from part b) as required to obtain PI.

Personal Income = $357 (National Income) - $18 (Taxes on production and imports) -$20 (Social security contributions) - $19 (Corporate income taxes) - $21 (Undistributed corporate profits) + $12 (Transfer payments) = $291.

Part d:

Adjust PI (from part c) as required to obtain DI.

Disposable Income = $291 (Personal Income) - $26 (Personal Taxes) = $265.

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