Below is a list of domestic output and national income figures for a given year.

Question

Below is a list of domestic output and national income figures for a given year. All figures are in billions. The questions that follow ask you to determine the major national income measures by both the expenditure and income methods. The results you obtain with the different methods should be the same.


Personal consumption expenditures $295
Net foreign factor income 4
Transfer payments 12
Rents 14
Statistical discrepancy 8
Consumption of fixed capital (depreciation) 27
Social security contributions 20
Interest 13
Proprietors' income 33
Net exports 11
Dividends 16
Compensation of employees 273
Taxes on production and imports 18
Undistributed corporate profits 21
Personal taxes 26
Corporate income taxes 19
Corporate profits 56
Government purchases 72
Net private domestic investment 33
Personal saving 20


a.) Using the above data, determine GDP by both the expenditure and the income approaches and then determine NDP.

Instructions: Enter only whole numbers for your answers.

GDP, the expenditure approach: $___ billion

GDP, the income approach: $ ___billion

NDP: $ __ billion

b.) Now determine NI: first, by making the required additions and subtractions from GDP (Method 1), and second, by adding up the types of income and taxes that make up NI (Method 2).

Instructions: Enter only whole numbers for your answers.

Method 1:__ $ billion

Method 2:__ $ billion

c.) Adjust National Income (from part b) as required to obtain PI.

Instructions: Enter only whole numbers for your answers.

Personal Income = $___ billion

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

Instructions: Enter a whole number for your answer.

Disposable Income = $_____ billion

Explanation / Answer

a) Gross Domestic product is the sum of consumption, Investment, Government purchases, and net exports. We have two approaches in calculation of GDP. They are 1. Expenditure approach 2. Income Approach Expenditure approach In this approach, GDP = C + I + G + Xn Where c = consumption I = investment G = government purchases Xn = net exports Here, C = ($295 + $27) I = $33 G = $72 Xn = $11 GDP = C + I + G + Xn = $322 + $33 + $72 + $11 =$438 Income approach In this approach, GDP = Compensation of employees + Rent + Interest + Proprietor’s Income + Corporate Profits + Indirect business taxes + Depreciation + Net foreign factor income = $273 + $14 + $13 + $33 + $56 + $18+ $27 +4 = $438 NDP (net domestic product) NDP = GDP – Depreciation = $438 - $27 $411 b. NI (National Income) NI = NDP – Net foreign income earned - Indirect tax = $411 – $4 - $ 18 = $389 other appoach NI = Wages(Compensation of employees) + rents + Interests + Corporate profits + Propritor income = $273 + $14 + $13 + $56 + $ 33 = $389 c. PI (Personnel Income) PI = NI – Social Security contributions – Corporate income taxes – Undistributed corporate profit + Transfer payments =$389 - $20 - $ 19 - $21 +$12 = $317 d. DI (Disposable Income) DI = PI – Personal Tax = $317 + $26 = $343

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