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
      Indirect Business Taxes     120,000
      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...