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.

Category	Value		Category	Value
Personal Consumption Expenditures	$295		Net Exports	11
Net Foreign Factor Income	4		Dividends	16
Transfer Payments	12		Compensation of Employees	273
Rents	14		Taxes on Production and Imports	18
Statistical Discrepancy	8		Undistributed Corporate Profits	21
Consumption of fixed capital (depreciation)	27		Personal Taxes	26
Social Security Contributions	20		Corporate Income Taxes	19
Interest	13		Corporate Profits	56
Proprietors' Income	43		Government Purchases	82
Personal Saving	30		Net Private Domestic Investments	33

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 = _______ 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 makeup 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

Answer 1

a)

GDP(Expenditure Approach) = personal consumption + ( net private domestic investment + Depreciation ) + Govt. purchases + net exports

                                               = 295 + 33 + 27 + 11+ 82 = 448

GDP(Income Approach) =compensation of employees + interest + rents + corporate profits + propreitors income + taxes on prodction and imports + depreciation + statistical discrepancy - net foreign factor income

                                       = 273 + 13 + 14 + 56 + 43 + 18 + 27 + + 8 - 4

                                       = 448

NDP = GDP - Depreciation (consumption of fixed capital)

         = 448 - 27 = 421

b)

NI ( 1st Method ) = NDP + net foriegn factor income - statistical discrepancy

                            = 421 + 4 - 8

                            = 417

NI ( 2nd Method ) = Rents + wages(compensation of employees) + propreitors income + interest + taxes on production and imports + corporate profits

                             = 14 + 273 + 43 + 13 + 18 + 56

                             = 417

c)

PI = NI + transfer payments - social security contribution - taxes on production and imports - undistributed corporate profits - corporate income taxes

    = 417 + 12 - 20 - 18 - 21 - 19

    = 351

d)

DI = PI - personal taxes

     = 351 - 26 = 325

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