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Chapter 4: Problem 126

Suppose the following data are available for an economy (figures in billions of dollars) \- Compensation of Employees 642 \- Income Taxes 116 \- Capital Consumption Allowances 95 \- Income other than Compensation of Employees 209 \- Indirect Taxes 101 \- Net Investment 152 Further, it is known that there are no corporations, and all income is paid directly to persons; there are no transfer payments, there is a balanced budget; and government expenditure is exclusively on the provision of services to the economy. Calculate each of the following: 1\. Gross National Product (GNP) 2\. Net National Product (NNP) 3\. National Income (NI) 4\. Personal Income 5\. Disposable Personal Income 6\. Government Sector Gross Output 7\. Private Sector Gross Output 8\. Consumption Expenditure 9\. Gross Investment

Short Answer

Expert verified
In summary, for this economy: 1. GNP = \(947 billion\) 2. NNP = \(852 billion\) 3. NI = \(751 billion\) 4. Personal Income = \(751 billion\) 5. Disposable Personal Income = \(635 billion\) 6. Government Sector Gross Output = \(101 billion\) 7. Private Sector Gross Output = \(846 billion\) 8. Consumption Expenditure = \(483 billion\) 9. Gross Investment = \(247 billion\)

Step by step solution

01

1. Calculate Gross National Product (GNP)

GNP = Compensation of Employees + Income other than Compensation of Employees + Capital Consumption Allowances + Indirect Taxes GNP = 642 + 209 + 95 + 101 GNP = \(947 billion\)
02

2. Calculate Net National Product (NNP)

NNP = GNP - Capital Consumption Allowances NNP = 947 - 95 NNP = \(852 billion\)
03

3. Calculate National Income (NI)

NI = NNP - Indirect Taxes NI = 852 - 101 NI = \(751 billion\)
04

4. Calculate Personal Income

Personal Income = National Income Personal Income = 751 Personal Income = \(751 billion\)
05

5. Calculate Disposable Personal Income

Disposable Personal Income = Personal Income - Income Taxes Disposable Personal Income = 751 - 116 Disposable Personal Income = \(635 billion\)
06

6. Calculate Government Sector Gross Output

Government Sector Gross Output = Government Expenditure + Indirect Taxes Government Sector Gross Output = 0 (balanced budget) + 101 Government Sector Gross Output = \(101 billion\)
07

7. Calculate Private Sector Gross Output

Private Sector Gross Output = GNP - Government Sector Gross Output Private Sector Gross Output = 947 - 101 Private Sector Gross Output = \(846 billion\)
08

8. Calculate Consumption Expenditure

Consumption Expenditure = Disposable Personal Income - Net Investment Consumption Expenditure = 635 - 152 Consumption Expenditure = \(483 billion\)
09

9. Calculate Gross Investment

Gross Investment = Net Investment + Capital Consumption Allowances Gross Investment = 152 + 95 Gross Investment = \(247 billion\) In conclusion, the values for each economic measure are: 1. Gross National Product (GNP): \(947 billion\) 2. Net National Product (NNP): \(852 billion\) 3. National Income (NI): \(751 billion\) 4. Personal Income: \(751 billion\) 5. Disposable Personal Income: \(635 billion\) 6. Government Sector Gross Output: \(101 billion\) 7. Private Sector Gross Output: \(846 billion\) 8. Consumption Expenditure: \(483 billion\) 9. Gross Investment: \(247 billion\)

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Most popular questions from this chapter

In a closed economy, there are four firms. The following diagram shows their sales. $$ \begin{array}{lccc} \text { Firm } & \text { Sells } & \text { To } & \text { For } \\ \text { Iron Mine Inc. } & \text { Iron One } & \text { United Steel Co. } & \$ 100 \\ \text { United Steel Co. } & \text { Steel } & \text { Acme Automobiles } & \$ 300 \\ \text { Acme Automobiles } & \text { Cars } & \text { Honest John's Car } & \\\ & & \text { Dealership } & \$ 500 \end{array} $$ Honest John's Car Dealership Cars Consumers $$\$ 1000$$ 1.) Calculate value added by each firm. 2.) Calculate GNP using both the value-added approach and the final goods approach. 3.) A value-added tax of \(10 \%\) is imposed. Calculate each firm's tax payment and tax receipts for the economy. 4.) Compare the results of a \(10 \%\) value-added tax with a \(10 \%\) sales tax imposed on final goods, is there a difference in total tax collected?

Given the following national income accounting data, compute GNP, NNP and NI (all figures are in billions). \(\begin{array}{lc}\text { - Compensation of employees } & 195.6 \\ \text { - U.S. exports of goods and services } & 14.5 \\ \text { - Capital consumption allowance } & 12.3 \\ \text { - Government purchases of goods and services } & 60.6 \\ \text { - Indirect business taxes } & 13.1 \\ \text { - Net private domestic investment } & 63.4 \\ \text { - Transfer payments } & 14.2 \\\ \text { - U.S. imports of goods and services } & 17.8 \\ \text { - Personal taxes } & 43.0 \\ \text { - Personal consumption expenditures } & 230.9\end{array}\)

What is the purpose of the National Accounts?

Why is it that interest payments on government bonds are not included as income currently earned, particularly, when interest on the bonds of private firms is included in national income as earned income?

What is the difference between money income and real income?
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