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 profits

Corporate income taxes

Retained earnings

Proprietor's income

Rents and interests earned

Exports

Imports

Net domestic product

Govt. expenditure on goods and services

Transfer payments

Social security contribution

Consumption expenditure

Gross investment

Disposable personal income

 296

202

112

48

146

196

36

20

2872

646

460

240

2110

440

2246

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-

 Import

Personal consumption expenditure

Government purchase

Personal income

Gross private domestic investment

Export

Personal tax payment

Capital consumption allowances

 1653

7818

2497

9895

1998

1089

1498

1324


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-

 Subsidies

Private final consumption expenditure

Net factor income from abroad

Indirect tax

Rent

Govt. final consumption expenditure

Net domestic fixed capital formation

Operating surplus

Wages and salaries

Net export

Addition to stock

Social security contribution by employers

Mixed income

 10

200

-20

50

10

40

60

40

100

-10

-10

20

80


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 profit

Corporate tax

Govt. final consumption 

Net domestic capital formation

Compensation of employees

Consumption of fixed Capital

Net indirect taxes

Net factor income from abroad

Net export

Rent

Private final consumption expenditure

Interest

Dividend

 10

20

200

100

800

20

100

-20

20

40

800

60

90


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 expenditure

Net fixed investment

Change in private inventories

Exports

Imports

Government investment

Compensation of employees

Proprietor's income

Rental income

Net interest

corporate profit

Depreciation

Indirect taxes

Corporate dividends

Social insurance payments

Current transfers

Personal taxes

 11943

1671

-3

1048

1540

757

9186

946

264

682

2059

708

739

459

1000

3182

413


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 $

Paddy

Cloth

Shoes

Biscuit

1000

5000

2000

1500

 1000

500

400

20

----

----

----

----

Raw materials used

 1500000

Net factor income from abroad 

Net indirect taxes

Depreciation

 200000

400000

500000


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:

Wages

Purchase of wheat

Dividend

Interest

 

200

200

80

20

 




500

Bread industry:

Wages

Purchase of flour

Dividend

Interest

 

300

500

100

100

 




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 taxes

Depreciation

Net income from abroad

Rent

Profit

Interest

Wages and salaries

Employer's contribution to social security scheme

Mixed income (Income from self employment)

 38

34

-3

10

25

20

170

30

5


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

Interest

Net factor income from abroad

Net indirect taxes

Royalty

Wages and salaries

Depreciation

Profits

Rent

 25

-5

40

5

240

50

30

10


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 salaries

Mixed income from self employment

Rental income

Interest income

Dividend

Undistributed profit

Corporate income tax

Depreciation

Net factor income from abroad

Indirect taxes

Subsidies

Personal income

Transfer payments

Social security contribution

Private consumption

2000

1000

300

500

3000

1000

600

250

200

1000

500

500

800

1000

5000


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 MP

Net indirect taxes

Depreciation

Net factor income from abroad

Undistributed corporate profit

Corporate income taxes

Dividend

Social security contribution

Transfer payment

Private consumption expenditure

Personal taxes

10000

2000

1000

1500

500

1000

3000

500

1500

6000

500


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


Solved National Income Problems Solved National Income Problems Reviewed by Premraj Bhatta on 10:26 PM Rating: 5

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