Question

Portland is an economy comprised of only of a restaurant named Gloria’s Kitchen (GK) owned and run by Gloria. In one year, the yearly sale revenue of GK is $1,000,000. GK pays $600,000 to its employees, who pay $140,000 in taxes on this income. GK’s equipment depreciates in value by $125,000. GK pays $50,000 in corporate income taxes and pays Gloria a dividend of $150,000. Gloria pays taxes of $60,000 on this dividend income. GK retains $75,000 of earnings in the business to finance future expansion

1. How much does this economic activity contribute to each of the following?

GDP =

NNP (net national product) =

National income =

Compensation of employees =

Proprietors’ income =

Corporate profits =

Personal income =

Disposable personal income =

Answer 1

Because there is only one producer or seller ,then gdp will equal to it total revenue=1,000,000( as consumption expenditure,from EXPENDITURE approach)

NNP= GDP- depreciation+ net factor income from abroad=1,000,000-125,000+0=875,000

National income= NNP- indirect tax+ subsidy=NNP-0+0=875,000

Compensation of employees=600,000

Proprietor income=1,000,000-600,000-50,000-150,000-75,000=125,000

Personal income= national income - corporate tax-undistributed profit=875,000-50,000-75,000=750,000

Disposable income= person Income- person income taxes=750,000-140,000-60,000=550,000