# Solved National Income Problems

1- Solved problems of national income measurement
1.1- Consider the following data for national income accounts and calculate,
a- GDP
b- Depreciation
c- Net domestic factor income receipts
d- Compensation of employees
e- Personal
f- Personal income tax
g- Net export

 SN Description Amount in $1-2- 3-4-5-6-7-8-9-10-11-12-13-14- 15- Indirect business taxes Corporate profitsCorporate income taxesRetained earningsProprietor's incomeRents and interests earnedExportsImportsNet domestic productGovt. expenditure on goods and servicesTransfer paymentsSocial security contributionConsumption expenditureGross investmentDisposable personal income 296202112481461963620287264646024021104402246 Solution: a- GDP =C + I + G + (X - M) =2110 + 440 + 460 + (36 - 20) =3212 b- Depreciation =GDP - NDP =3212 - 2872 =340 c- Compensation of employees =GDP - depreciation - indirect tax - corporate profit - corporate indirect tax - rent and interest earned - proprietor's income = 3212 - 340 - 296 - 202 - 196 - 146 = 2032 d- Personal income =NI - corporate income tax - undistributed corporate profit - social security contribution + transfer payment NI =NNP - Indirect taxes - Subsidies =2872 - 296 + 00 =2575 PI =2576 - 112 - 48 - 240 + 460 =2636 e- Personal Income Tax =PI - Disposable income =2636 - 2246 =390 f- Net export =X - M =36 - 20 =16 1.2- Consider the following data for national income,  SN Description Amount in$ 1-2-3-4-5-6-7-8- ImportPersonal consumption expenditureGovernment purchasePersonal incomeGross private domestic investmentExportPersonal tax paymentCapital consumption allowances 16537818249798951998108914981324

On basis of the data calculate;
a- Gross National Product
b- Net National Product
c- Personal Saving

Solution:
a- GNP                    =C + I + G + (X - M) + (R - P)
=7818 + 1998 + 2497 + (1089 - 1653) + (00 - 00)
=11749

b- NNP                    =GNP - Depreciation
=11749 - 1324
=10425

c- Personal Saving =Personal income - Direct Tax - Consumption expenditure
=9895 - 1494 - 7818
=583

1.3- Calculate national income by expenditure and income method from the following data;
 SN Description Amount in $'000 1-2-3-4-5-6-7-8-9-10-11-12-13- SubsidiesPrivate final consumption expenditureNet factor income from abroadIndirect taxRentGovt. final consumption expenditureNet domestic fixed capital formationOperating surplusWages and salariesNet exportAddition to stockSocial security contribution by employersMixed income 10200-205010406040100-10-102080 Solution: National Income by Expenditure Method; NI =C + I + G + NX + FIFA - IT + Subsidies =200 + (60 - 10) +40 + (-10) + (-20) - 50 + 10 = 220 Nation Income by Income Method; NI =Wages & salaries + rent + operating surplus + mixed income + net factor income from abroad + depreciation + subsidies NI =100 + 10 + 40 + 80 + (-20) + 00 +10 =240 - 20 =220 1.4- Calculate GDP at market price by using income and expenditure method.  SN Description Amount in$'000 1-2-3-4-5-6-7-8-9-10-11-12-13- Undistributed profitCorporate taxGovt. final consumption Net domestic capital formationCompensation of employeesConsumption of fixed CapitalNet indirect taxesNet factor income from abroadNet exportRentPrivate final consumption expenditureInterestDividend 102020010080020100-2020408006090

Solution:
By Income Method;
GDPMP    =Compensation of employees + Rent + Interest + Dividend + Undistributed profit + Indirect taxes + Corporate Tax + Net factor income from abroad + Depr.(Consmp. of fixed capital)
=800 + 40 + 60 + 90 + 10 + 100 + 20 + (-20) + 20
=1140 - 20
=1120

By Expenditure Method;
GDPMP    =C + I + G + (X - M) + NFIA
=800 + (100 + 20) + 200 + 20 + (-20)
=1140 - 20
=1120

1.5- Consider the following figures of national income aggregates and compute GNP by income and expenditure method and compare the result. Also compute, personal income, disposable income and personal saving.
 SN Description Amount $'000 1-2-3-4-5-6-7-8-9-10-11-12-13-14-15-16-17- Personal consumption expenditureNet fixed investmentChange in private inventoriesExportsImportsGovernment investmentCompensation of employeesProprietor's incomeRental incomeNet interestcorporate profitDepreciationIndirect taxesCorporate dividendsSocial insurance paymentsCurrent transfersPersonal taxes 119431671-3104815407579186946264682205970873945910003182413 Solution: By Income Method; GNPMP =Comp. of employees + Rental Income + Net interest + Corporate profit + Proprietor's income + NFIA + Indirect taxes + Depreciation =9186 + 264 + 682 + 2059 +946 + 00 + 739 +708 =14584 GNPMP =C + I + G + (X - M) + NFIA =11943 + (1671 -3 + 708) + 757 + (-492) + 00 =14584 NI =GNPMP - Depr. - IT + Sub =14584 - 708 - 739 =13137 PI =NI - UCP - SSC - CIT + TP =13137 - 2059 - 1000 + (3182 + 459) =13719 DI =PI - DT =13719 - 413 =13306 PS =DI - C (C = Consumption exp.) =13306 - 11943 =1363 2.1- Let an economy produces only four goods paddy cloth, shoes and biscuit. Calculate GDM at MP, GNP at MP and NI from the following hypothetical data.  Description Quantity (Units) Price in$ Amount in $PaddyClothShoesBiscuit 1000500020001500 100050040020 ---------------- Raw materials used 1500000 Net factor income from abroad Net indirect taxesDepreciation 200000400000500000 Solution: DGP at MP =Qnt. × Price - Value of raw materials =1000 × 1000 + 5000 × 500 + 2000 × 400 + 1500 × 20 - 1500000 =10,00000 + 25,00000 + 8,00000 +30000- 15,00000 =43,30000 - 15,00000 =28,30000 GNP at MP = GDP at MP + Net factor income from abroad =28,30,000 + 2,00,000 =30,30,000 NI =GNP at MP - Depre. - Indirect taxes =30,30,000 - 5,00,000 - 4,00,000 =30,30,000 - 9,00,000 =21,30,000 2.2 A farmer produces wheat and sells to the miller, miller produces flour and sells to the baker. Finally baker produces bread and sells to the consumer. the income and expenditure accounts of these three industries are given as follows.  Description Expenditure in$ Receipt $Wheat Product: Wages Dividend Interest 160 40 0 20 Flour:WagesPurchase of wheatDividendInterest 2002008020 500 Bread industry:WagesPurchase of flourDividendInterest 300500100100 1000 Solution: a- Under final product method, the value of final product is taken as GDP. According to the question, the final product is bread here and its value is equal to 1000. Hence GDP = 1000 b- Under value added method, the value added at every stage of production is added together to measure GDP. According to the question value added at each stage of production is give as follows. .Farmer (00) value added 200 .Miller (500 - 200) value added 300 .Baker (1000 - 500) value added 500 Gross value added 1000 Hence, GDP = 1000 2.3- From the following hypothetical data, GDP at market price and GDP at factor cost.  Item$ in Million Net indirect taxesDepreciationNet income from abroadRentProfitInterestWages and salariesEmployer's contribution to social security schemeMixed income (Income from self employment) 3834-3102520170305

Solution:
GDP at MP    =Wages & salaries + profits + rent + interest + mixed income + net indirect taxes + depreciation + employer's contribution to sss.
=170 + 25 + 10 + 20 + 5 + 38 + 34 + 30
=332

GDP at FC     = GDP at MP - Net indirect taxes
=332 - 38
=294

2.4- Consider the following hypothetical data and answer the questions that follows.
 Description $in Million InterestNet factor income from abroadNet indirect taxesRoyaltyWages and salariesDepreciationProfitsRent 25-5405240503010 a- Calculate NDP at FC and GDP at MP. b- Calculate GNP at MP and NNP at FC. c- Calculate NI. Solution: a - NDP at FC =Wages & salaries + profit + rent + interest + royalties =240 + 30 + 10 + 25 + 5 =310 GDP at MP =NDP at FC + Depre. + Net indirect taxes =310 + 50 + 40 =400 b- GNP at MP =GDP at MP + Net factor income from abroad = 400 + (-5) =395 NNP at FC =GNP at MP - Depre. - Net indirect taxes =395 - 50 - 40 =305 c- NI =NNP at FC (NI is always equal to NNP at FC) =305 2.5- Calculate NI, PI, DI and personal saving from the following hypothetical data.  Description$ in Billion Wages and salariesMixed income from self employmentRental incomeInterest incomeDividendUndistributed profitCorporate income taxDepreciationNet factor income from abroadIndirect taxesSubsidiesPersonal incomeTransfer paymentsSocial security contributionPrivate consumption 2000100030050030001000600250200100050050080010005000

Solution:
NI    =Wages & salaries + rent + interest + profit + mixed income + net factor income from abroad
=2000 + 300 + 500 + (3000 + 1000 + 600) + 1000 + 200
=2800 + 4600 + 1200
=8600           (hints: Profit includes dividend, undistributed profit, corporate income tax)

Personal Income =NI - Undistributed corporate profit - Corporate income tax - Social security contribution + Transfer payment
=8600 - 1000 - 600 -1000 + 800
=9400 - 2600
=6800

Disposable income =PI - Personal Taxes (Direct Tax)
=6800 - 500
=6300

Personal saving        =DI - Private consumption
=6300 - 5000
=1300

2.6- Calculate NI, PI, DI, and PS from following hypothetical national income data.
 Description \$ in Million GDP at MPNet indirect taxesDepreciationNet factor income from abroadUndistributed corporate profitCorporate income taxesDividendSocial security contributionTransfer paymentPrivate consumption expenditurePersonal taxes 100002000100015005001000300050015006000500

Solution:
NI    =GDP at MP + Net factor income from abroad - Depreciation - Net indirect taxes
=10000 + 1500 - 1000 - 2000
=8500

PI   =NI - Undistributed corporate profit - corporate income taxes - Social security contribution + Transfer payment
=8500 - 500 - 1000 - 500 + 1500
=10000 - 2000
=8000

DI    =PI - Personal taxes (Direct Tax)
=8000 - 500
=7500

PS    =DI - Private consumption expenditure
=7500 - 6000
=1500