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
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SN
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Description
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Amount in $
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1- 2- 3- 4- 5- 6- 7- 8- 9- 10- 11- 12- 13- 14- 15-
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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
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296 202 112 48 146 196 36 20 2872 646 460 240 2110 440 2246
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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,
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SN
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Description
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Amount in $
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1- 2- 3- 4- 5- 6- 7- 8-
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Import Personal consumption expenditure Government purchase Personal income Gross private domestic investment Export Personal tax payment Capital consumption allowances
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1653 7818 2497 9895 1998 1089 1498 1324
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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;
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SN
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Description
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Amount in $'000
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1- 2- 3- 4- 5- 6- 7- 8- 9- 10- 11- 12- 13-
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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
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10 200 -20 50 10 40 60 40 100 -10 -10 20 80
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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.
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SN
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Description
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Amount in $'000
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1- 2- 3- 4- 5- 6- 7- 8- 9- 10- 11- 12- 13-
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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
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10 20 200 100 800 20 100 -20 20 40 800 60 90
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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.
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SN
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Description
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Amount $'000
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1- 2- 3- 4- 5- 6- 7- 8- 9- 10- 11- 12- 13- 14- 15- 16- 17-
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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
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11943 1671 -3 1048 1540 757 9186 946 264 682 2059 708 739 459 1000 3182 413
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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.
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Description
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Quantity (Units)
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Price in $
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Amount in $
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Paddy Cloth Shoes Biscuit
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1000 5000 2000 1500
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1000 500 400 20
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---- ---- ---- ----
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Raw materials used
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1500000
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Net factor income from abroad Net indirect taxes Depreciation
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200000 400000 500000
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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.
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Description
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Expenditure
in $
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Receipt $
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Wheat Product:
Wages
Dividend
Interest
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160
40
0
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20
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Flour: Wages Purchase of wheat Dividend Interest
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200 200 80 20
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500
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Bread industry: Wages Purchase of flour Dividend Interest
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300 500 100 100
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1000
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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.
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Item
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$ in Million
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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)
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38 34 -3 10 25 20 170 30 5
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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.
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Description
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$ in Million
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Interest Net factor income from abroad Net indirect taxes Royalty Wages and salaries Depreciation Profits Rent
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25 -5 40 5 240 50 30 10
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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.
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Description
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$ in Billion
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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
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2000 1000 300 500 3000 1000 600 250 200 1000 500 500 800 1000 5000
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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.
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Description
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$ in Million
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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
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10000 2000 1000 1500 500 1000 3000 500 1500 6000 500
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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
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