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    ATW108 Chapter 25 Tutorial

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    Shuhada Shamsuddin
    Gross domestic product (GDP), net domestic product (NDP), and national income (NI) were calculated using the provided national income accounting data: (1) GDP was calculated to be $343.7 billion using the expenditures approach. (2) NDP was determined to be $331.9 billion by subtracting depreciation from GDP. (3) NI was computed as $334.1 billion by adding net foreign factor income to NDP and subtracting the statistical discrepancy.

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    ATW108 Chapter 25 Tutorial

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    Shuhada Shamsuddin
    167 views4 pages
    Gross domestic product (GDP), net domestic product (NDP), and national income (NI) were calculated using the provided national income accounting data: (1) GDP was calculated to be $343.7 billion using the expenditures approach. (2) NDP was determined to be $331.9 billion by subtracting depreciation from GDP. (3) NI was computed as $334.1 billion by adding net foreign factor income to NDP and subtracting the statistical discrepancy.

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    Gross domestic product (GDP), net domestic product (NDP), and national income (NI) were calculated using the provided national income accounting data: (1) GDP was calculated to be $343.7 billion using the expenditures approach. (2) NDP was determined to be $331.9 billion by subtracting depreciation from GDP. (3) NI was computed as $334.1 billion by adding net foreign factor income to NDP and subtracting the statistical discrepancy.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    167 views4 pages

    ATW108 Chapter 25 Tutorial

    Uploaded by

    Shuhada Shamsuddin
    Gross domestic product (GDP), net domestic product (NDP), and national income (NI) were calculated using the provided national income accounting data: (1) GDP was calculated to be $343.7 billion using the expenditures approach. (2) NDP was determined to be $331.9 billion by subtracting depreciation from GDP. (3) NI was computed as $334.1 billion by adding net foreign factor income to NDP and subtracting the statistical discrepancy.

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    of 4

    Chapter 25 - Measuring Domestic Output and National Income

    McConnell, Brue, and Flynn 20e


    DISCUSSION QUESTIONS
    3. Which of the following goods are usually intermediate goods and which are usually final goods:
    running shoes; cotton fibers; watches; textbooks; coal; sunscreen lotion; lumber? LO1
    Answer: Running shoes are usually a final good. The person purchasing the running shoes is
    typically the individual who will use the shoes.
    Cotton fibers are usually an intermediate good. The cotton fibers are used to produce other goods
    that will be sold on the market.
    Watches are usually a final good. The person purchasing the watch is typically the individual who
    will use the watch.
    Textbooks are usually a final good. The person purchasing the textbook is typically the individual
    who will use the textbook.
    Coal is usually an intermediate good. The coal is used to produce other goods, primarily
    electricity, which will be sold on the market.
    Sunscreen lotion is usually a final good. The person purchasing the sunscreen lotion is typically
    the individual who will use the sunscreen lotion.
    8. What is the difference between gross private domestic investment and net private domestic investment?
    If you were to determine net domestic product (NDP) through the expenditures approach, which of these
    two measures of investment spending would be appropriate? Explain. LO2
    Answer: Gross private domestic investment less depreciation is net private domestic investment.
    Depreciation is the value of all the physical capitalmachines, equipment, buildingsused up in
    producing the years output.
    Since net domestic product is gross domestic product less depreciation, in determining net
    domestic product through the expenditures approach it would be appropriate to use the net
    investment measure that excludes depreciation, that is, net private domestic investment.
    PROBLEMS
    4. Below is a list of domestic output and national income figures for a certain year. All figures are in
    billions. The questions that follow ask you to determine the major national income measures by both the
    expenditures and the income approaches. The results you obtain with the different methods should be the
    same. LO4

    a. Using the above data, determine GDP by both the expenditures and the income approaches. Then
    determine NDP.
    b. Now determine NI in two ways: first, by making the required additions or subtractions from NDP; and
    second, by adding up the types of income and taxes that make up NI.
    c. Adjust NI (from part b) as required to obtain PI.
    d. Adjust PI (from part c) as required to obtain DI.
    Answer: a. GDP = $388, NDP = $361; b. NI = $357; c. PI = $291; d. DI = $265
    Part a:
    The expenditures approach: GDP = [$245 (Personal consumption expenditures)] + [$33 (Net
    private domestic investment) + $27 (Consumption of fixed capital, depreciation) (the sum of these
    two components measures gross investment = $60)] + [$72 (Government purchases)] + [$11 (net
    exports)] = $245 + $60 + $72 + $11 = $388.
    The income approach: GDP = $223 (compensation of employees) + $14 (Rents) + $13 (Interest) +
    $33 (Proprietor's income) + $56 (Corporate profits) + $18 (Taxes on production and imports) +
    $27 (Consumption of fixed capital, depreciation) - $4 (Net foreign factor income) + $8 (Statistical
    discrepancy) = $223 + $14 + $13 + $33 + $56 + $18 + $27 -$4 + $8 = $388
    Both methods will give us the same answer.
    Net Domestic Product equals GDP minus Consumption of fixed capital (depreciation). NDP =
    $388 - $27 = $361.
    Part b:
    Net Domestic Product Approach: National Income = $361 (Net Domestic Product) - $8
    (Statistical discrepancy) + $4 (Net foreign factor income) = $357.
    Income and Taxes Approach: National Income = $223 (Compensation of employees) + $14
    (Rents) + $13 (Interest) + $33 (Proprietor's income) + $56 (Corporate profits) + $18 (Taxes on
    production and imports) = $357.
    Part c:

    Personal Income = $357 (National Income) - $18 (Taxes on production and imports) -$20 (Social
    security contributions) - $19 (Corporate income taxes) - $21 (Undistributed corporate profits) +
    $12 (Transfer payments) = $291.
    Part d:
    Disposable Income = $291 (Personal Income) - $26 (Personal Taxes) = $265.
    5. Using the following national income accounting data, compute (a) GDP, (b) NDP, and (c) NI. All
    figures are in billions. LO4

    Answer: (a) GDP = $343.7; (b) NDP = $331.9; (c) NI = $334.1.


    Feedback:
    Part a:
    Using the expenditures approach, GDP = $219.1 (Personal consumption expenditures) + $52.1
    (Net private domestic investment) + $11.8 (Consumption of fixed capital) + $59.4 (Government
    purchases) + $17.8 (U.S. exports of goods and services) - $16.5 (U.S. Imports of goods and
    services) = $343.7.
    Part b:
    Net Domestic Product = $343.7 (GDP) - $11.8 (Consumption of fixed capital) = $331.9.
    Part c:
    National Income = $331.9 (Net Domestic Product) + $2.2 (Net foreign factor income) - $0
    (Statistical discrepancy) = $334.1.
    We have the following table summarizing these steps.

    (a) Personal consumption expenditures (C)


    Government purchases (G)
    Gross private domestic investment (Ig)
    (52.1 + 11.8)
    Net exports (Xn) (17.8 16.5)
    Gross domestic product (GDP)

    $219.1
    59.4
    63.9

    (b) Consumption of fixed capital


    Net domestic product (NDP)

    -11.8
    $331.9

    (c) Net foreign factor income earned in U.S.


    Statistical discrepancy
    National income (NI)

    2.2
    0
    $334.1

    1.3
    $343.7

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