National Income Account (General Information) (1997/in million dollars)
Government purchases of goods and services--------------------- 890
Indirect business taxes (unearned income) ------------------------- 250
Personal consumption expenditure---------------------------------- 1,630
Depreciation------------------------------------------------------------ 300
Proprietor's profits ----------------------------------------------------- 300
Compensation of employees------------------------------------------ 475
Interest Income---------------------------------------------------------- 125
Gross private domestic investment----------------------------------- 660
Rental income----------------------------------------------------------- 150
Exports------------------------------------------------------------------- 585
Imports------------------------------------------------------------------- 370
Corporate profits-------------------------------------------------------- 265
Wages and salaries----------------------------------------------------- 1,480
Public transfers--------------------------------------------------------- 110
Incomes earned by foreigners in the domestic economy----------- 600
Private transfers--------------------------------------------------------- 250
Incomes earned by nationals abroad------------------------------------ 650
Sales of securities------------------------------------------------------- 180
Based on the above hypothetical data,
Compute the GNP of the nation in 1997 using the income and expenditure approaches.
If the price index for 1997 is 150, what was the real GNP of the nation in 1997?
Compute the net national product and national income of the economy in 1997.
Compute the net private domestic investment in 1997.
To compute the GNP of the nation in 1997 using the income approach, we need to sum up all the incomes earned in the domestic economy:
GNP = Compensation of employees + Proprietor's profits + Rental income + Interest income + Corporate profits + Incomes earned by foreigners in the domestic economy + Incomes earned by nationals abroad
GNP = 475 + 300 + 150 + 125 + 265 + 600 + 650
GNP = 2,565 million dollars
To compute the GNP of the nation in 1997 using the expenditure approach, we need to sum up all the spending on final goods and services:
GNP = Personal consumption expenditure + Gross private domestic investment + Government purchases of goods and services + Exports - Imports
GNP = 1,630 + 660 + 890 + 585 - 370
GNP = 3,395 million dollars
To compute the real GNP of the nation in 1997, we need to adjust the nominal GNP for inflation using the price index:
Real GNP = Nominal GNP (1997) / Price Index (1997) * 100
Real GNP = 3,395 / 150 * 100
Real GNP = 2,263.33 million dollars
The net national product (NNP) is the GNP minus depreciation:
NNP = GNP - Depreciation
NNP = 3,395 - 300
NNP = 3,095 million dollars
The national income is the total income earned by individuals, businesses, and the government:
National Income = Compensation of employees + Proprietor's profits + Rental income + Interest income + Corporate profits + Public transfers + Private transfers
National Income = 475 + 300 + 150 + 125 + 265 + 110 + 250
National Income = 1,675 million dollars
The net private domestic investment is the gross private domestic investment minus deprecation:
Net Private Domestic Investment = Gross private domestic investment - Depreciation
Net Private Domestic Investment = 660 - 300
Net Private Domestic Investment = 360 million dollars
To compute the GNP of the nation in 1997 using the income and expenditure approaches, we need to add up all the components of income and expenditure.
Income approach:
GNP = Compensation of employees + Proprietor's profits + Rental income + Interest income + Corporate profits + Incomes earned by foreigners in the domestic economy + Incomes earned by nationals abroad + Indirect business taxes (unearned income)
GNP = 475 + 300 + 150 + 125 + 265 + 600 + 650 + 250 = 2815 million dollars
Expenditure approach:
GNP = Personal consumption expenditure + Gross private domestic investment + Government purchases of goods and services + Net exports (Exports - Imports)
GNP = 1630 + 660 + 890 + (585 - 370) = 3395 million dollars
Next, let's compute the real GNP of the nation in 1997 using the price index:
Real GNP = GNP / Price index
Real GNP = 2815 / 150 = 18.77 million dollars
Now let's compute the net national product (NNP) and national income:
NNP = GNP - Depreciation
NNP = 2815 - 300 = 2515 million dollars
National income = NNP + Indirect business taxes (unearned income)
National income = 2515 + 250 = 2765 million dollars
Lastly, let's compute the net private domestic investment:
Net private domestic investment = Gross private domestic investment - Depreciation
Net private domestic investment = 660 - 300 = 360 million dollars
To compute the GNP (Gross National Product) of the nation in 1997 using the income and expenditure approaches, we need to add up all the components provided in the given data.
Using the income approach:
1. Start by summing up all the income components: compensation of employees, proprietor's profits, interest income, rental income, corporate profits, and wages and salaries.
GNP = Compensation of employees + Proprietor's profits + Interest Income + Rental income + Corporate profits + Wages and salaries
= 475 + 300 + 125 + 150 + 265 + 1,480
= 2,795 million dollars
Using the expenditure approach:
1. Start by summing up all the expenditure components: personal consumption expenditure, gross private domestic investment, government purchases of goods and services, exports, and public transfers.
GNP = Personal consumption expenditure + Gross private domestic investment + Government purchases of goods and services + Exports + Public transfers
= 1,630 + 660 + 890 + 585 + 110
= 3,875 million dollars
Therefore, the GNP of the nation in 1997 using the income approach is 2,795 million dollars, and using the expenditure approach is 3,875 million dollars.
To calculate the real GNP of the nation in 1997, we need the price index for 1997. But the given data does not provide any information about it, so we cannot accurately compute the real GNP.
The net national product (NNP) is the GNP minus depreciation. From the given data, we can see that depreciation is 300 million dollars.
NNP = GNP - Depreciation
= 2,795 - 300
= 2,495 million dollars
The national income can be calculated by subtracting indirect business taxes, incomes earned by foreigners in the domestic economy, and incomes earned by nationals abroad from NNP.
National Income = NNP - Indirect business taxes - Incomes earned by foreigners in the domestic economy - Incomes earned by nationals abroad
= 2,495 - 250 - 600 - 650
= 995 million dollars
And finally, the net private domestic investment can be found by subtracting depreciation from gross private domestic investment.
Net private domestic investment = Gross private domestic investment - Depreciation
= 660 - 300
= 360 million dollars