From the Expenditure
angle, what is the largest
component of GDP?
Consumption
From the Expenditure
angle, what is the smallest
component of GDP?
Expenditure Approach to 1996 GDP ($ Billions)
C=
I=
G=
X-M =
GDP =
Personal Consumption Expenditure
Durable Goods
Nondurable Goods
Services
Gross Private Domestic Investment
Nonresidential
Residential
Change in Business Inventory
Government Purchases
Federal
Defense
Nondefense
State and Local
Net Exports of Goods & Services
Exports
Imports
Gross Domestic Product
5 5,207.6
634.5
1,534.7
3,038.4
1,116.5
781.4
309.2
25.9
1,406.7
520.0
352.8
167.3
886.7
-94.8
870.9
(965.7)
7,636.0
From the Expenditure
angle, what is the smallest
component of GDP?
Net Exports
From the Income angle,
what is the largest &
smallest component of
GDP?
1996 National Income ($ Billions)
Compensation of Employees
Wages and Salaries
Supplements
Rental Income
Corporate Profit
Net Interest
Proprietor’s Income
Farm
Nonfarm
National Income
4,426.9
3,633.6
793.3
146.3
735.9
425.1
520.3
37.2
483.1
6,254.5
From the Income angle,
what is the largest &
smallest component of
GDP?
Largest: Compensation of
Employees.
Smallest: Rental Income.
Bringing GDP & National Income into accord:
GDP + Net Factor Payments from Abroad = GNP
Receipt of Factor Incomes from the rest of the world –
Payment of Factor Incomes to the rest of the world
GNP - Depreciation = NNP
Net National Product
NNP - Indirect Business Taxes = National Income
Reconciliation between GNP and NI:
Minus
Plus
Equals
Minus
Equals
Minus
Gross Domestic Product (GDP)
Factor Payments to the rest of the world
Factor Payments from the rest of the world
Gross National Product (GNP)
Capital Depriciation
Net National Product (NNP)
Indirect Business Taxes
7,636.0
-232.6
234.3
7,637.7
830.1
6,807.6
553.1
Equals
National Income (NI)
6,254.5
GDP – depreciation = NDP
Net Domestic Product
In a closed economy:
NDP – indirect business taxes = NI
• Sales taxes
• Excise taxes
• Customs duty
• Property taxes
• License Fees
National Income (NI) is what people earn.
Personal Income (PI) is what people receive.
PI = NI + income received but not earned
– income earned but not received
Disposable Personal Income
= PI – Direct Taxes
How Comprehensive is GDP?
 Value of Housework
 The Underground Economy
 Leisure
 Quality of Goods and Services
 Costs of Environmental Damage
Use the following data to compute GDP, GNP, NNP, NI, PI and
Personal Disposable Income.
Personal Consumption Expenditures
Interest
Corporate Profit
Government Purchases
Depreciation
Rent
Gross Private Domestic Investment
Compensation of Employees
Exports
Imports
Indirect Business Taxes
Proprietor’s Income
Income Tax
Income Earned but not Received
Income Received but not Earned
Factor Income from abroad
Factor Incoem to the world
$800
80
120
300
80
40
100
750
100
60
70
110
100
120
140
60
50
Suppose next year, the following changes in
economic activity occur in the country. What
effect would these changes have on GDP?
Durable Goods
+30
Business Inventory
+10
Imports
Income Tax
+20
+10