Questions (4)
1. Explain why an economy’s output, in essence, is also its income?
2. Why do economists include only final goods in measuring GDP for a particular year? Why
don’t they include the value of stocks and bonds sold? Why don’t they include the alue of
used furniture bought and sold?
3. 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.
4.
Below is a list of domestic output and national income figures for a given year. All
figuresare in billions. The questions that follow ask you to determine the major national
Income measures by both the expenditure and income methods. The results you obtain with
the different methods should be the same.
Personal consumption expenditures
$245
Net foreign factor income
4
Transfer payments
12
Rents
14
Statistical discrepancy
-8
Consumption of fixed capital (depreciation)
27
Social security contributions
20
Interest
13
Proprietors’ income
33
Net exports
11
Dividends
16
Compensation of employees
223
Taxes on production and imports
18
Undistributed corporate profits
21
Personal taxes
26
Corporate income taxes
19
Corporate profits
56
Government purchases
72
Net private domestic investment
33
Personal saving
20
a. Using the above data, determine GDP by both the expenditure and the income
approaches. Then determine NDP.
b. Now determine NI: first, by making the required additions and subtractions from
GDP; 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.
5. Using the following national income accounting data, compute (a) GDP, (b) NDP, (c) NI. All
figures are in billions.
Compensation of employees
U.S. exports of goods and services
Consumption of fixed capital
(depreciation)
Government purchases
Taxes on production and imports
Net private domestic investment
Transfer payments
U.S. imports of goods and services
Personal taxes
Net foreign factor income
Personal consumption expenditures
Statistical discrepancy
$194
17
11
59
14
52
13
16
40
2
219
0
6. The following table shows nominal GDP and an appropriate price index for a group of
selected years. Compute real GDP. Indicate in each calculation whether you are inflating or
deflating the nominal GDP data.
Year
Nominal GDP,
Billions
Price index
(2000 = 100)
Real GDP,
Billions
1964
1974
1984
1994
2004
$663.6
1500.0
3933.2
7072.2
11734.3
22.13
34.73
67.66
90.26
109.10
$ ______
$ ______
$ ______
$ ______
$ ______
7. Which of the following are included in this year’s GDP? Explain your answer in each case.
a. Interest on an AT&T corporate bond.
b. Social security payments received by a retired factory worker.
c. The unpaid services of a family member in painting the family home.
d. The income of a dentist.
e. The money received by Smith when she sells her economics textbook to a book
buyer.
f. The monthly allowance a college student receives from home.
g. Rent received on a two-bedroom apartment.
h. The money received by Josh when he resells his current-year-model Honda
automobile to Kim.
i. The publication of a college textbook.
j. A 2-hour decrease in the length of the workweek.
k. The purchase of an AT&T corporate bond.
l. A $2 billion increase in business inventories.
m. The purchase of 100 shares of GM common stock.
n. The purchase of an insurance policy.