Using The Following National Income Accounting Data To Compu

1 Using The Following National Income Accounting Data Compute A Gd

Using the following national income accounting data, compute (a) GDP, (b) NDP, and (c) NI. All figures are in billions. Category Value Compensation of employees $196.2 U.S. exports of goods and services 19.8 Consumption of fixed capital 11.8 Government purchases 59.4 Taxes on production and imports 14.4 Net private domestic investment 52.1 Transfer payments 13.9 U.S. imports of goods and services 16.5 Personal taxes 40.5 Net foreign income 2.2 Personal consumption expenditures 219.1 Statistical discrepancy 0.0 Instructions: Round your answers to one decimal place. a. GDP = $ billion b. NDP = $ billion c. National Income = $ billion

2. The data for a hypothetical economy in a given year are as follows: Category Value Personal consumption expenditures $50 billion Purchases of stocks and bonds $30 billion Net exports −$10 billion Government purchases $20 billion Sales of secondhand items $8 billion Gross investment $25 billion What is the country’s GDP for the year? $ billion

3. Assume that a grower of flower bulbs sells its annual output of bulbs to an Internet retailer for $70,000. The retailer, in turn, brings in $160,000 from selling the bulbs directly to final customers. What amount would these two transactions add to personal consumption expenditures and thus to GDP during the year?

4. Suppose that in 1984 the total output in a single-good economy was 7,000 buckets of chicken and that the price of each bucket of chicken was $10. In 2005 the price per bucket of chicken was $16 and 22,000 buckets were produced. Determine the GDP price index for 1984, using 2005 as the base year. Instruction: Enter your response as an index number rounded to one decimal place. GDP price index = By what percentage did the price level, as measured by this index, rise between 1984 and 2005? % What were the amounts of real GDP in 1984 and 2005? In 1984 real GDP = $ In 2005 real GDP = $

5. Data for the country Upper Mongoose is given in the table below: Category Value Net exports $50 billion Value of new goods and services produced in the underground economy $80 billion Personal consumption expenditures $450 billion Value of the services of stay-at-home parents $30 billion Gross domestic investment $100 billion Government purchases $100 billion Total $810 billion What is Upper Mongoose’s GDP for the year? $ billion What is the size of the underground economy as a percentage of GDP? % By what percentage would GDP be boosted if the value of the services of stay-at-home spouses were included in GDP? %

6. The annual output and prices of a 3-good economy are shown in the table below. Good Price Year 1 Quantity of Goods Year 1 Price Year 2 Quantity of Goods Year 2 Quarts of Ice Cream $4. $4. Bottles of Shampoo $3. $3. Jars of Peanut Butter $2. $2. What was this economy’s GDP in year 1? $ What was its GDP in year 2? $

7. Suppose that the annual rates of growth of real GDP of Econoland over a five-year period are as follows: Year Growth Rate % % % % % What was the average of these growth rates in Econoland over these 5 years? Instructions: Round your answer to one decimal place. % What term would economists use to describe what happened in year 3? If the growth rate in year 3 had been a positive 5 percent rather than a negative 2 percent, what would have been the average growth rate? %

8. Suppose that Glitter Gulch, a gold mining firm, increased its sales revenues on newly mined gold from $75 million to $150 million between one year and the next. Assuming that the price of gold increased by 100 percent over the same period, by what numerical amount did Glitter Gulch’s real output change? If the price of gold had not changed, what would have been the change in Glitter Gulch’s real output? $ million

9. A mathematical approximation called the rule of 70 tells us that the number of years that it will take something that is growing to double in size is approximately equal to the number 70 divided by its percentage rate of growth. Thus, if Mexico’s real GDP per person is growing at 7 percent per year, it will take about 10 years (= 70 7) to double. Apply the rule of 70 to solve the following problem. Real GDP per person in Mexico in 2005 was about $11,000 per person, while it was about $44,000 per person in the United States. If real GDP per person in Mexico grows at the rate of 2 percent per year, how long will it take Mexico’s real GDP per person to reach the level that the United States was at in 2005? (Hint: How many times would Mexico’s 2005 real GDP per person have to double to reach the United States’ 2005 real GDP per person?) years

Sample Paper For Above instruction

The calculation of national income accounting measures like GDP (Gross Domestic Product), NDP (Net Domestic Product), and NI (National Income) is fundamental in understanding economic performance. Using the provided data, we can analyze the economic activities of a specific economy to derive these measures accurately.

Computing GDP, NDP, and NI

Given the data, GDP is calculated as the total market value of all final goods and services produced within a country during a specific period. It includes consumption, investment, government spending, and net exports (exports minus imports). From the data:

Compensation of employees = $196.2 billion

U.S. exports of goods and services = $19.8 billion

Consumption of fixed capital = $11.8 billion

Government purchases = $59.4 billion

Taxes on production and imports = $14.4 billion

Net private domestic investment = $52.1 billion

Transfer payments = $13.9 billion

U.S. imports of goods and services = $16.5 billion

Personal taxes = $40.5 billion

Net foreign income = $2.2 billion

Personal consumption expenditures = $219.1 billion

Statistical discrepancy = $0.0 billion

Calculating GDP involves summing consumption, investment, government spending, and net exports. Specifically, GDP = C + I + G + (X - M). From the data, we need to estimate these components if not explicitly given, but since direct data may be given, the process involves summation and adjustment for net exports. For instance, net exports = exports - imports = $19.8 billion - $16.5 billion = $3.3 billion. Then, GDP can be approximated accordingly.

Net Domestic Product (NDP) is GDP minus depreciation (consumption of fixed capital). Considering the data, NDP = GDP - depreciation (fixed capital consumption). Given the consumption of fixed capital is $11.8 billion, NDP = GDP - $11.8 billion.

National Income is derived from NDP by subtracting indirect taxes and adding subsidies, or by summing income components like wages, rents, interest, and profits. In this case, summing the compensation of employees with other income components provides NI, which in this data is approximated through the sum of wages and other incomes.

Analysis of a Hypothetical Economy

For the second scenario, GDP is computed as the sum of personal consumption expenditures, gross investment, government purchases, and net exports. With personal consumption expenditures at $50 billion, gross investment at $25 billion, government purchases at $20 billion, and net exports at -$10 billion, the formula becomes:

GDP = C + I + G + (X - M) = 50 + 25 + 20 - 10 = $85 billion.

Transactions and Contributions to GDP

The sale of bulbs from grower to retailer and then to consumers contributes to personal consumption expenditures since final sales to consumers are included in consumption. The bulbs sold directly to final customers for $160,000 would lead to an increase in personal consumption expenditures by this amount, thus raising GDP for the year. The initial sale to the retailer ($70,000) is considered intermediate and not directly added to GDP, but the final sale at $160,000 is counted.

Price Index and Real GDP Calculation

In 1984, the economy produced 7,000 buckets of chicken at $10 per bucket, totaling $70,000. In 2005, at $16 per bucket and 22,000 buckets produced, the nominal GDP is 22,000 * $16 = $352,000. To find the price index relative to 2005 as the base year, use the formula:

Price Index = (Price in 1984 Quantity in 1984) / (Price in 2005 Quantity in 2005) * 100.

Calculating this, the index reflects inflation over the period, and the real GDP figures adjust for changes in price levels.

Estimating GDP and the Underground Economy

For Upper Mongoose, GDP includes all legally produced goods and services plus the underground economy. Including the underground economy ($80 billion) and the value of services by stay-at-home parents ($30 billion) in GDP estimates enhances the comprehensiveness. The percentage contribution of the underground economy is computed as (value of underground economy / GDP) * 100. Incorporating homemaker services significantly increases the total measure of economic activity, highlighting the importance of non-market production in comprehensive GDP estimates.

Gross Domestic Product of a Multigood Economy

The GDP in each year is calculated by summing the market value of all goods produced. For Year 1, multiply each good’s quantity by its price and sum these to find total GDP. Repeat for Year 2, adjusting for price changes and quantities, to analyze growth over time.

Growth Rates and Economic Trends

The average growth rate over five years is computed by summing individual annual rates and dividing by 5. A negative growth rate in Year 3 indicates a recession or economic contraction, while a positive 5% growth would indicate recovery or expansion. These indicators inform about economic cycles and stability.

Adjusting for Price Changes in Gold Mining

Glitter Gulch’s revenue increase from $75 million to $150 million, coupled with a 100% increase in gold’s price, implies a stable real output if the value of gold mined remains constant in real terms. The change in real output is determined by dividing revenue by price levels, adjusting for inflation. If gold’s price doubled, the true change in physical output would be calculated by comparing the quantity of gold mined, excluding price effects.

The Rule of 70 and Growth Forecasts

The rule of 70 approximates the time for a value to double at a constant growth rate. For Mexico, with a 2% growth rate, the doubling time is approximately 70 / 2 = 35 years. To estimate when Mexico’s GDP per capita will reach the U.S. level, we consider how many times the Mexican GDP per capita must double, then apply the rule of 70 to determine the timeframe.

Thus, it would take about 35 years for Mexico’s per capita GDP to double once at 2% growth, and approximately 70 years for it to grow from $11,000 to $44,000, assuming exponential growth and no other economic changes. This projection underscores the importance of growth rates in long-term economic convergence.

Conclusion

Accurate calculation and understanding of national income accounts facilitate insightful economic analysis. From computing GDP and related measures to analyzing economic growth and structural changes, these metrics serve as vital tools for policymakers, economists, and researchers in shaping economic strategies.

References

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