Download Expenditure approach Earnings Approach

Economics 101
Disposable Income and GDP ACCOUNTING
Spring 2007
It will NOT be on the exam, but you should know how to do it in order to answer some multiple
choice problems. In particular, which items are included in GDP earnings approach and
product approach and getting disposable income. Hand it in for extra credit.
The figures below show the some aggregate figures for the domestic economy. In answering the
questions below, not all items are used. Calculate GDP by the expenditure approach and the
earnings or income approach. Hint: Put the form down first and then fill in the figures.
Depreciation (capital consumption allowance)......................................
Consumption expenditure on all items ..................................................
Social Security and Medicare taxes) ......................................................
Production of consumer durable. (Automobiles, Refrigerators) ...........
Dividends ...............................................................................................
Production of Raw Materials (chemicals, steel, coal, grain, oil) ...........
Corporate profits before taxes ................................................................
Indirect business taxes ...........................................................................
Interest paid by government (to households) It is a transfer payment. .
Net investment .......................................................................................
Value of work done at home .................................................................
Exports ...................................................................................................
Imports ...................................................................................................
Wages and salaries including fringe benefits ........................................
Capital Gains in Realized in the Stock Market and home sales ........ …
Rental income by household ..................................................................
Government purchases of goods and service (Federal, State, Local) ....
Government transfer payments to persons (excluding interest paid) ....
Gross investment ....................................................................................
Corporate taxes ......................................................................................
Net interest paid by businesses to households .......................................
Personal tax payments ............................................................................
Proprietor's Income (from unincorporated businesses, farms) ..............
Expenditure approach
Earnings Approach
Calculate Disposable Income making all the adjustments. Not just Ydi=Ya-Tx+Tr
Show that Total Saving in the Economy = Total Gross Investment
500
8500
1500.
320.
400
700.
2000.
600.
500
2000
5000
1600
2200.
6400
4000.
500
2500
2000
2500
500.
500
2500
1400
Expenditure approach
Consumption expenditure on all items ....................................................................
8500
Gross investment ......................................................................................................
2500
Government purchases of goods and service (Federal, State, Local) ......................
2500
Exports .....................................................................................................................
1600
Imports .....................................................................................................................
2200.
Expenditure approach 12,700
Earnings Approach
Wages and salaries including fringe benefits...........................................................
6400
Proprietor's Income (from unincorporated businesses, farms) ................................
1400
Net interest paid by businesses to households .........................................................
400
Rental income by household ....................................................................................
400
Corporate profits before taxes ..................................................................................
2000.
Depreciation (capital consumption allowance) ........................................................
500
Indirect business taxes .............................................................................................
600.
Earnings Approach
12,700
Calculate Disposable Income making all the adjustments.
Not just Ydi=Ya-Tx+Tr
-Depreciation............................................................................................................
-Addition to Retained earnings ................................................................................
-Taxes
-Social Security and Medicare taxes) ......................................................................
-Personal tax payments ............................................................................................
-Indirect business taxes ............................................................................................
-Corporate taxes .......................................................................................................
500
1100
...................................................................................................... Taxes
5100.
Government transfer payments to persons (excluding interest paid).......................
Interest paid by government (to households) It is a transfer payment. ...................
Government purchases of goods and service (Federal, State, Local) ......................
2500
500
2500
5500
Government disbursements
Government (Deficit = Dissaving) =
1500.
2500
600.
500.
- 400
Disposable income
GDP
12,700
Taxes
- 5,100
Depreciation
-500
Add. To Ret. Earning
-1,100
Government Transfer payments
3,000
Disposable Income
9,000
-Consumption of 8500 = Personal saving 400
Government Saving
- 400
Corporate Saving
= 1,700
Foreign. Investment (X-M)
= 800
Total Savings in Economy
2,500 = Gross Investment of =2,500