Using the following information, I am to calculate: governmentpurchases, net tax

Question

Using the following information, I am to calculate: governmentpurchases, net taxes, total planned investment, real GDP, totalsaving, total leakages, and total injections.
Consumption spending $50 Capital Stock (end of 2005) $100 Capital Stock (end of 2006) $103 Change in inventories $0 Govt welfare payments $5 Govt unemployment insurance pay $2 Govt payroll $3 Govt outlays for materials $2 Depreciation $7 Interest Rate 6%
FIRST, I guess I am confused with deciding whether somethingis included in the government purchase, or as a transfer payment.From what I know, welfare payments, unemployment insurance pay, andoutlays are all considered TRANSFER, while payroll is the only govtpurchase in this situation. I'm not sure, though.
I'm also not sure how depreciation plays a role in any of thecalculations. It may just be me, because we haven't touched on thattopic yet at all.
I'm just not really sure where/how to start this problem, andany help would be really great. I'm really confused!
Consumption spending $50 Capital Stock (end of 2005) $100 Capital Stock (end of 2006) $103 Change in inventories $0 Govt welfare payments $5 Govt unemployment insurance pay $2 Govt payroll $3 Govt outlays for materials $2 Depreciation $7 Interest Rate 6%
FIRST, I guess I am confused with deciding whether somethingis included in the government purchase, or as a transfer payment.From what I know, welfare payments, unemployment insurance pay, andoutlays are all considered TRANSFER, while payroll is the only govtpurchase in this situation. I'm not sure, though.
I'm also not sure how depreciation plays a role in any of thecalculations. It may just be me, because we haven't touched on thattopic yet at all.
I'm just not really sure where/how to start this problem, andany help would be really great. I'm really confused!

Explanation / Answer

I found this answer somewhere online, hope this helps: a. Govt purchases = government payrolls $3 plus government outlays of materials $ 2 = $ 5 ( This is assuming that govt owns no capital stock, does not investin capital stock and therefore not required to provide fordepreciation, Govt. does not chnage holding of inventories. Moreimportntly, it is assumed that the unemployment insurance paymentis a direct tranfer to the unemployed and does not represent anypremium paid to insurance company to purchase insurance againstunemployment insurance payments). b. Net taxes T= G = govt. purchases = $5 ( total taxes = govt purchases plus transfer payments= $5 + $5 + $2 = $12 , assuming that the govt. has a balanced budget) c. Total planned investment = capital stock( end of 2006) $103minus capital stock( end of 2005) $ 100 plus change in inventories$ 0 = $ 3. d. Real GDP = C + I + G = consumption spending $50 + $3 + $5 = $ 58( I and G has been calcul;ated at c and a above) e. Total Saving = Disposable Income (Y-T) minus Consumptionspending = $58 - $ 5 - $ 50 = $3 ( EXACTLY EQUAL TO INVESTMENT) f. Total leakages = Savings + taxes (total) = $3 + $ 12 = $ 15 h Total injections = Investment plus Govt. purchases and Transferpayments = $ 3 + $ 5 + $5 + $ 2 = $ 15 ( note that total leakages = total injections, there being equalityof Saving and investment and assumed balanced budget of theGovt.) Interest of 6% is relvant for computing interest income that goesinto GDP but that is already accounted for in GDP calculation ofC+I+G. As for depreciation, we have already adjusted for this in the netInvestment calculation. However, Gross Investment is Net investmentof $3 as calculated at c above plus depreciation of $ 7 = $10. Ifwe take Gross Investment as the basis for GDP calculation, then, c.totale planned investment = $3+$7 = $10, d. real GDP = $58 + &= $65, e. total saving = $#3+ $7 = $10, f. total leakages= $15 ascomputed earlier + $ 7 = $22 (since depreciation is a leakage) g. total injections = $15 as computed earlier plus $7 of extrainvestments from what was computed earlier.= $22 Which computation basis you will choose will depend on how you weretaught. Tradtionally, GDP included depreciation (ie. grossinvestment)

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