Problem Set I

Problem Set I

1. Use the following table of data to compute a hypothetical economy’s NDP, Net Exports, Government Taxes minus Transfers, Disposable Personal Income and Personal Saving.   (Hint: You don’t have enough data to complete the entire National Income Accounts. There is enough information though to “puzzle” out the correct values!)

Gross Domestic Product \$6,000
Gross Private Domestic Investment       800
Net Private Domestic Investment       200
Personal Consumption Expenditures   4,000
Government Purchases (Consumption and Investment)   1,100
Government Budget Surplus         30

NDP = GDP – Depreciation
Depreciation = Gross Private Domestic Investment – Net Private Domestic Investment
Depreciation = \$800 - \$200 = \$600
NDP = \$6,000 - \$600
NDP = \$5,400

Net Exports (NX) = Exports – Imports or Y = C + I + G + NX
\$6,000 = \$4,000 + \$800 + \$1,100 + NX
NX = \$100

Government Taxes minus Transfers
\$30 (BS) = TA – \$1,100
TA = \$1,130
Using (C + S – TR + TA = C + I + G + NX),
\$4,000 + \$800 – TR + \$1,100 = \$6,000
TR = \$100
\$1,130 (TA) - \$100 (TR) = \$1,030
Gov’t Taxes minus Transfers = \$1,030

Disposable Personal Income (YD) = Y + TR – TA
YD = \$6,000 + \$100 - \$1,130
YD = \$4,970

Personal Saving (S) = YD – C
S = \$4,970 - \$4,000
S = \$970

2. A company had sales for the year of \$2,500,000.   Its expenses were:

Wages \$1,100,000
Interest     150,000
Depreciation     300,000
Purchased Raw Materials     750,000

a) What was the company’s contribution to GDP?

NI = \$1,100,000 + \$150,000 + Business Profit
NI = \$1,100,000 + \$150,000 + [\$2,500,000 - \$2,420,000]
NI = \$1,330,000
GDP = NI + Indirect Business Taxes + Depreciation
GDP = \$1,330,000 + \$120,000 + \$300,000
GDP = \$1,750,000

b) What was the company’s contribution to NDP?

NDP = GDP – Depreciation...