Chapter 25, Problem 4P

Sub part (a):

To determine

Calculation of GDP and NDP.

Explanation of Solution

GDP income approach can be calculated as follows.

$\begin{array}{l}\text{GDP in expenditures' approach }=\left[\begin{array}{l}\text{Personal consumption expenditures}+\\ \text{Net private domestic investment }+\\ \text{Consumption of fixed capital}+\\ \text{Government purchases}+\text{Net exports}\end{array}\right]\\ =\$\text{245}+\$\text{33}+\$\text{27}+\$72+\text{\$11}\\ =\text{ \$388}\end{array}$

The value of GDP from expenditure approach is $388.

GDP expenditure approach can be calculated as follows

$\begin{array}{c}\text{GDP in income approach }=\left[\begin{array}{l}\text{Compensation of employees}+\text{Rents}+\\ \text{Interest}+\text{Proprietor's income}+\\ \text{Corporate profits}+\text{Taxes on production and imports}+\\ \text{Consumption of fixed capital}+\text{Net foreign factor income}+\\ \text{Statistical discrepancy}\end{array}\right]\\ =\text{\$223}+\text{\$14}+\text{\$13}+\text{\$56}+\text{\$18}+\text{\$27}-\text{\$4}+\text{\$8}\\ =\text{\$388}\end{array}$

The value of GDP from income approach is $388.

Net domestic product can be calculated as follows.

$\begin{array}{c}\text{NDP}=\text{GDP}-\text{Consumption of fixed capital}\\ =\text{\$388}-\text{\$27}\\ =\text{\$361}\end{array}$

The value of net domestic product is $361.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product (GDP): It is the worth of final goods and services produced in an economy within a particular time framework.

Net Domestic Product (NDP): It is the aggregate money value of all final commodities and services produced in the country in a given time period, minus net depreciation.

Sub part (b):

To determine

Calculation of national income.

Explanation of Solution

National income from NDP can be calculated as follows.

$\begin{array}{c}\text{National Income}=\left[\begin{array}{l}\text{Net Domestic Product}-\text{Statistical discrepancy}+\\ \text{Net foreign factor income}\end{array}\right]\\ =\$361-\$8+\$4\\ =\$357\end{array}$

National income is $357.

National income from income and tax can be calculated as follows.

$\begin{array}{c}\text{National income}=\left[\begin{array}{l}\text{Compensation of employees}+\text{Rents}+\\ \text{Interest}+\text{Proprietor's income}+\text{Corporate profits}+\\ \text{Taxes on production and imports}\end{array}\right]\\ =\$223+\$14+\$13+\$33+\$56+\$18\\ =\$357\end{array}$

National income is $357.

Economics Concept Introduction

Concept introduction:

Gross Domestic Product (GDP): It is the worth of final goods and services produced in an economy within a particular time framework.

Net Domestic Product (NDP): It is the aggregate money value of all final commodities and services produced in the country in a given time period, minus net depreciation.

Sub part (c):

To determine

Calculation of personal income.

Explanation of Solution

Personal income can be calculated as follows.

$\begin{array}{c}\text{Personal Income}=\left[\begin{array}{l}\text{National Income}-\text{Taxes on production and imports}\\ -\text{Social security contributions}-\text{Corporate income taxes}\\ -\text{Undistributed corporate profits}+\text{Transfer payments}\end{array}\right]\\ =\$357-\$20-\$19-\$21+\$12\\ =\$291\end{array}$

Personal income is $291.

Sub part (d):

To determine

Calculation of disposable income.

Explanation of Solution

Disposable income can be calculated as follows.

$\begin{array}{c}\text{Disposable Income = Personal Income}-\text{Personal Taxes}\\ =\text{\$291}-\$26\\ =\$265\end{array}$

Disposable income is $265.