Question

Part 1

Consider the table below. All data are for 2004 and are in billions of dollars, except the CPI, which is a percentage.

Capital Consumption Allowance $ 1,435.3 Billion

Consumer Spending $ 8,214.3 Billion

Corporate Income Taxes $ 360.1 Billion

CPI (2004) 105.0

Dividends $ 200.3 Billion

Exports $ 1,173.8 Billion

Factor Income Payments made to Foreign Entities $ 361.7 Billion

Factor Income Receipts from Foreign Entities $ 415.4 Billion

Government Spending $ 2,215.9 Billion

Gross Private Domestic Investment $ 1,928.1 Billion

Imports $ 1,797.8 Billion

Indirect Business Taxes $ 974.3 Billion

Interest $ 505.5 Billion

Personal Taxes $ 1,049.1 Billion

Proprietors' Income $ 889.6 Billion

Rents $ 134.2 Billion Retained Earnings $ 601.1 Billion

Social Security Contributions $ 822.2 Billion

Transfer Payments $ 1,427.5 Billion

Wages/salaries $ 6,687.6 Billion

All figures must be expressed to 1 decimal place (i.e. nearest $100 Million)

a. Calculate Gross Domestic Product from the expenditures’ approach.

b. Calculate Net Domestic Product, National Income, Personal Income and Disposable Personal Income.

c. Calculate Gross National Product. Explain the conceptual distinction between GDP and GNP

Part 2

Calculate the missing values in the table below. Then answer the questions that follow it. GDP are in billions of dollars and the Consumer Price Index (CPI) is a percentage. CPI for 2001 is 98.6

Year Nominal GDP CPI RealGDP ri

2002 $10,469.58 Billion 100.0

2003 $10,971.34 Billion 102.3

2004 $11,734.30 Billion 105.0

2005   $12,601.00 Billion 108.6

All figures must be calculated to 2 decimal places and in the correct formats on a separate paper. You must show your work for all calculations in order to receive credit for the problem. DO NOT FILL IN THE TABLE. WORK PROBLEMS ON SEPARATE PAPER AND PRODUCE ANSWERS THERE!

a. Has there been any span of years, IN ONE YEAR INCREMENTS, within the table over which nominal GDP changed in one direction, but real GDP changed in the opposite direction? (Examples of what a span of years is, that are not included in this table would be 1990-1991 or 1996-1997.) Explain why or why not.

b. Has there been inflation over each span of years in the table? Explain why or why not.

Answer 1

Part I:

(a) Computing GDP from expenditure approach:

GDP = Consumer spending + Government spending + Gross Private Domestic Investment + Exports – Imports
= $8214.3 billion + $2215.9 billion + $1928.1 billion + $1173.8 billion - $1797.8 billion
= $11734.3 billion

(b) Computing Net domestic product (NDP):

NDP = GDP – Capital consumption allowance
= $11734.3 billion - $1435.3 billion
= $10299 billion

Computing National Income:

National Income = NDP + Factor income receipts held by foreign entities – Factor income payments made to foreigners – Indirect business taxes
= $10299 billion + $415.4 billion - $361.7 billion - $974.3 billion
= $9378.4 billion

Computing Personal income:

Personal Income = National Income – Social security contributions – Retained earnings + interest + Transfer payments
= $9378.4 billion - $822.2 billion - $601.1 billion + $505.5 billion + $1427.5 billion
= $9888.1 billion

Computing Disposable Personal Income:

Disposable personal income = Personal Income – Personal Taxes
= $9888.1 billion - $1049.1 billion
= $8839 billion

(c) Computing Gross National Product:

GNP = GDP + Factor income receipts held by foreign entities – Factor income payments made to foreigners
= $11734.3 billion + $415.4 billion - $361.7 billion
= $11788 billion

The conceptual distinction between GDP and GNP is that GNP includes Net factor income from abroad while GDP does not.