There are basically two approaches to GNP: the expenditure approach and the income approach. The following is a list of national income figures for a given year. Arrange them in the form of a consolidated income statement with revenues and allocations ( expenses ') for the whole of the economy. The figures are in billions of dollars. \(\begin{array}{lr}\text { Personal consumption expenditures (C) } & 660 \\\ \text { Transfer payments } & 127 \\ \text { Rents } & 40 \\ \text { Capital consumption allowance (depreciation) (D) } & 95 \\ \text { Social security taxes } & 46 \\ \text { Interest } & 20 \\ \text { Proprietor's income } & 68 \\ \text { Net exports } & 2 \\ \text { Dividends } & 6 \\ \text { Compensation of employees } & 642 \\ \text { Indirect business taxes } & 101 \\\ \text { Undistributed corporate profits } & 40 \\ \text { Personal taxes } & 116 \\ \text { Corporate income taxes } & 35 \\ \text { Corporate profits } & 81 \\ \text { Government purchases of goods and services } & 233 \\\ \text { Net private domestic investment }\left(I_{\text {net }}\right) & 57 \\ \text { Personal saving } & 60 \\ \text { Calculate, in addition, Personal Income (PI) and Disposable } \\ \text { Personal Income (DPI). } & \end{array}\)

Step by step solution

01

Calculate GDP using the expenditure approach (GDP_EA)

GDP can be calculated using the expenditure approach with the following formula: \(GDP_EA = C + I_{net} + G + NX\). Using the given data: \( \begin{aligned} GDP_EA &= C + I_{\text {net}} + G + NX \\ &= 660 + 57 + 233 + 2 \\ &= 952 \end{aligned} \) GDP using the expenditure approach is 952 billion dollars.

02

Calculate Personal Income (PI) and Disposable Personal Income (DPI)

Personal Income (PI) can be calculated using the following formula: \(PI = \text{Compensation of employees} + \text{Proprietor's income} + \text{Rents} + \text{Interest} + \text{Dividends} + \text{Transfer payments}\). Using the given data: \( \begin{aligned} PI &= 642 + 68 + 40 + 20 + 6 + 127 \\ &= 903 \end{aligned} \) Personal Income is 903 billion dollars. Disposable Personal Income (DPI) can be calculated using the following formula: \(DPI = PI - \text{Personal taxes}\). Using the computed PI and the given data: \( \begin{aligned} DPI &= 903 - 116 \\ &= 787 \end{aligned} \) Disposable Personal Income is 787 billion dollars.

03

Create the consolidated income statement

Here's the consolidated income statement with revenues and allocations (expenses) for the whole economy. Revenues: - Personal consumption expenditures (C) = 660 - Net private domestic investment (I_net) = 57 - Government purchases of goods and services (G) = 233 - Net exports (NX) = 2 Total Revenues: 952 (GDP using expenditure approach) Expenses: - Compensation of employees = 642 - Proprietor's income = 68 - Rents = 40 - Interest = 20 - Dividends = 6 - Transfer payments = 127 - Social security taxes = 46 - Indirect business taxes = 101 - Personal taxes = 116 - Corporate income taxes = 35 - Capital consumption allowance (depreciation) (D) = 95 Total Expenses: 1296 In addition, we calculated Personal Income (PI) to be 903 billion dollars and Disposable Personal Income (DPI) to be 787 billion dollars.

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