ECO 1102 Lecture 5: ECO 1102 - Lecture 5

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Ndp (net domestic production) = factor incomes + indirect taxes. Gdp (same as y) = ndp + depreciation (capital consumption allowance) Depreciation refers to what is required in order to maintain the capital stock in its existing condition. It is possible for one economic agent to earn income from land, labour and/or capital simultaneously. Therefore, it is not the identity of the earner that matters, but rather the manner in which the income is earned. Gdp, as calculated by the expenditure approach, should equal y, as calculated by the factor income approach. Note how the bottom line in table 5. 1 is consistent with the bottom line in table 5. 2. Gdp = y, or gross domestic product = national income. This equality is consistent with the circular flow model. Real gdp is nominal gdp adjusted for inflation. The objective is often to measure change in the volume of economic activity, as economic well-being depends on the quantity of g&s produced but

Related Questions

Calculate the missing data.

Calculate missing data from the table.

Income/Expenditure Flows	Amount (in billions)
Consumption expenditure	$7
Government expenditure	$5
Depreciation	$3
Net taxes	$2
Investment	$4
Net exports	$1
Expenditures
Income
GDP

Calculate the following.

Using the data from a partial set of national income and expenditure data, address the following:

Calculate gross domestic product (GDP) using the expenditure approach.

Determine net domestic product, gross national product (GNP), and statistical discrepancy.

Item	Amount in 2010 (in billions)
Government expenditure (G) =	$8
Consumption expenditure (C) =	$20
Investment (I) =	$5
Net exports (NX) =	$1.5
GDP (expenditure approach)=
Total wages =	$21
Net operating surplus =	$11
Net domestic product =
Indirect taxes minus subsidies =	$3.5
Capital consumption =	$2
GDP (income approach)=
Statistical discrepancy =
Net factor income from abroad =	$5.5
GNP =

Consider the tables.

Given production and price data below, address the following:

Calculate an economy's nominal GDP and real GDP.

In 2000:

Item	Quantity (millions)	Price ($/unit)	Expenditure (millions of $)
Socks	15	5	75
SIM cards	20	2	40
Defense Budget	9	5	45

Real/Nominal GDP = 160

In 2003:

Item	Quantity (millions)	Price ($/unit)	Expenditure (millions of $)
Socks	15	5	75
SIM cards	20	5	100
Defense Budget	20	10	200

Nominal GDP =

2003 Quantities valued at 2000 prices:

Item	Quantity (millions)	Price ($/unit)	Expenditure (millions of $)
Socks
SIM cards
Defense Budget

Real GDP =

Answer the following questions.

How do you measure GDP?

How do you measure real and nominal GDP?

How do you determine Consumer Price Index and what are its limitations?

Which of the following expenditures will be included in GDP which will be excluded from the calculation? Explain your answers.

Spare tires bought by Across America, a car rental company

Textbooks bought by college students

Cabinets purchased by a furniture store

A new car purchased by an NFL player

A cruise ship bought by Carnival

5. The income approach

The following table shows macroeconomic data for a hypothetical country. All figures are in billions of dollars.

	Billions of Dollars
Gross private investment (investment)	120
Capital consumption allowance (depreciation)	35
Exports	60
Imports	55
Government purchases	130
Personal consumption expenditures (consumption)	325
Indirect business taxes	20
Social insurance taxes	33
Corporate profit taxes	13
Undistributed corporate profits	4
Transfer payments	70
Personal taxes	90
Compensation of employees	380
Corporate profits	120
Rental income (of persons)	25
Net interest	40
Proprietors' income	5
Income earned from the rest of the world	90
Income earned by the rest of the world	45

National income can also be calculated based on disposable income. Use the following table to derive personal income and national income (in billions of dollars). Specify what needs to be added to disposable income to arrive at personal income, and explain how personal income should be adjusted to find national income.

	Billions of Dollars
Disposable income		500
Plus		+
Personal income		=
Plus social insurance taxes		+ 33
Plus		+
Plus undistributed corporate profits		+ 4
Minus		-
National income		=

National income is the total amount earned by the citizens of a country, while gross domestic product is the total value of goods and services produced within a country. To determine the gross domestic product, you have to make some adjustments to national income. Use the following table to derive gross domestic product and, as part of the process, net domestic product (NDP) (in billions of dollars). Again, specify what should be added to and subtracted from national income to arrive at the net domestic product, and what should be added to the net domestic product to arrive at the gross domestic product.

		Billions of Dollars
National income
Plus indirect business taxes		+ 20
Plus		+
Minus		-
Net domestic product (NDP)		=
Plus		+
Gross domestic product (GDP)		=

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ECO 1102 Lecture 5: ECO 1102 - Lecture 5

ECO 1102 Full Course Notes

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