The following is a list of figures for a given year in billions of dollars. Using this data, compute: (a) GDP; (b) NDP; (c) NI; (d) PI; (e) DI; (f) Net exports.
Transfer payments $ 16
Government purchases 80
Personal taxes 38
Corporate income taxes 28
Indirect business taxes 15
Social security contributions 8
Undistributed corporate profits 19
Proprietor’s income 25
Compensation of employees 258
Personal consumption expenditures 322
Consumption of fixed capital 4
Rents 10
U.S. exports 14
Corporate profits 70
Interest 12
Dividends 23
Imports to U.S. 17
Gross private domestic investment 63
Net foreign factor income earned in the U.S. 10
Answer this question
To compute the different components, we'll use the given figures and apply the formulas for each variable.
(a) GDP (Gross Domestic Product) can be computed as:
GDP = C + I + G + (X - M)
Where:
C - Personal consumption expenditures
I - Gross private domestic investment
G - Government purchases
(X - M) - Net exports
Given:
C = Personal consumption expenditures = $322 billion
I = Gross private domestic investment = $63 billion
G = Government purchases = $80 billion
(X - M) = Net exports = (U.S. exports - Imports to U.S.) = ($14 billion - $17 billion) = -$3 billion
Now, let's calculate GDP:
GDP = C + I + G + (X - M)
GDP = $322 billion + $63 billion + $80 billion + (-$3 billion)
GDP = $462 billion
Therefore, the GDP for this year is $462 billion.
(b) NDP (Net Domestic Product) can be calculated by subtracting consumption of fixed capital (depreciation) from GDP:
NDP = GDP - Consumption of fixed capital
NDP = $462 billion - $4 billion
NDP = $458 billion
Therefore, the NDP for this year is $458 billion.
(c) NI (National Income) can be calculated by subtracting indirect business taxes, corporate income taxes, and social security contributions from NDP:
NI = NDP - Indirect business taxes - Corporate income taxes - Social security contributions
NI = $458 billion - $15 billion - $28 billion - $8 billion
NI = $407 billion
Therefore, the NI for this year is $407 billion.
(d) PI (Personal Income) can be calculated by subtracting undistributed corporate profits and corporate income taxes from NI and adding transfer payments and social security contributions:
PI = NI - Undistributed corporate profits - Corporate income taxes + Transfer payments + Social security contributions
PI = $407 billion - $19 billion - $28 billion + $16 billion + $8 billion
PI = $384 billion
Therefore, the PI for this year is $384 billion.
(e) DI (Disposable Income) can be calculated by subtracting personal taxes from PI:
DI = PI - Personal taxes
DI = $384 billion - $38 billion
DI = $346 billion
Therefore, the DI for this year is $346 billion.
(f) Net exports can be calculated by subtracting imports from U.S. exports:
Net exports = U.S. exports - Imports to U.S.
Net exports = $14 billion - $17 billion
Net exports = -$3 billion
Therefore, the net exports for this year are -$3 billion.
To compute the various figures using the given data, we will use the following formulas:
a) GDP (Gross Domestic Product) = Personal consumption expenditures + Gross private domestic investment + Government purchases + Net exports.
b) NDP (Net Domestic Product) = GDP - Consumption of fixed capital.
c) NI (Net Income) = NDP - Indirect business taxes - Corporate income taxes - Social security contributions.
d) PI (Personal Income) = NI - Corporate profits - Dividends - Undistributed corporate profits + Transfer payments.
e) DI (Disposable Income) = PI - Personal taxes.
f) Net exports = U.S. exports - Imports to U.S. + Net foreign factor income earned in the U.S.
Now let's plug in the given data and calculate each figure:
a) GDP = Personal consumption expenditures + Gross private domestic investment + Government purchases + Net exports
= 322 + 63 + 80 + (14 - 17 + 10)
= 322 + 63 + 80 + 7
= 472 billion dollars.
b) NDP = GDP - Consumption of fixed capital
= 472 - 4
= 468 billion dollars.
c) NI = NDP - Indirect business taxes - Corporate income taxes - Social security contributions
= 468 - 15 - 28 - 8
= 417 billion dollars.
d) PI = NI - Corporate profits - Dividends - Undistributed corporate profits + Transfer payments
= 417 - 70 - 23 - 19 + 16
= 321 billion dollars.
e) DI = PI - Personal taxes
= 321 - 38
= 283 billion dollars.
f) Net exports = U.S. exports - Imports to U.S. + Net foreign factor income earned in the U.S.
= 14 - 17 + 10
= 7 billion dollars.
So, the computed figures are:
(a) GDP = 472 billion dollars
(b) NDP = 468 billion dollars
(c) NI = 417 billion dollars
(d) PI = 321 billion dollars
(e) DI = 283 billion dollars
(f) Net exports = 7 billion dollars.