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Michael H O

ECO365 Summer 2011 Chapter 13 Problem Set 1. What adjustments are needed to bring equal to national income? Is it correct to simply assume the two are equal without any adjustment? Why the difference between them is often ignored in macroeconomic analyses? What are the adjustments to make and equal each other? Why? Some adjustments to the definition of must be made, however, before the identification of and national income is entirely correct in practice. (i) does not take into account the economic loss due to the tendency of machinery and structures to wear out as they are used (depreciation). less depreciation is called net national product ( ). (ii) 09:3LO,907,O97,381078,705,7941,.4:3978L3.420-:9,703495,7941L98574:.9,39K02:89-0,0 to in calculations of national income. (iii) National income depends on the prices producers receive for their goods while uses the prices purchasers pay. These two sets of prices need not, however, be identical when sales taxes make buyers pay more than sellers receive, leading to overestimate national income. The amount of this tax wedge, called indirect business taxes, must therefore be subtracted from in calculating true national income. National income equals less depreciation, plus net unilateral transfers, less indirect business taxes. The difference between and national income is by no means an insignificant amount, but macroeconomics has little to say about it, and it is of little importance for macroeconomic analysis. Therefore, we usually use the terms and national income interchangeably, emphasizing the distinction between the two only when it is essential. measures the final value of all goods and services that are produced within a country in a given time period. does not correct, as 4081479K05479L4341.4:397L08574:.9L43.,77L04:9:8L3J807;L.08 provided by foreign-owned capital. equals plus net receipts of factor income from the rest of the world. Thus, the adjustments are L *=?2KNL=71)J2O*NK1*KN)-+J?K3J2N-)O - *=?2KNL=71)J2O2K*KN)-+J?K3J2N-)O Michael Ho Page 1 of 4
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