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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.

Paper For Above instruction

Introduction

National income accounting provides essential measures such as Gross Domestic Product (GDP), Net Domestic Product (NDP), and National Income (NI), which serve as fundamental indicators of a country’s economic performance. Accurate calculation of these figures offers insights into economic health, productivity, and income distribution. Utilizing the data provided, this paper delineates the step-by-step process to compute GDP, NDP, and NI, emphasizing the importance of each component within national accounting.

Calculating GDP

Gross Domestic Product (GDP) represents the total value of goods and services produced within a country's borders during a specific period, typically calculated via the expenditure approach. The formula is:

GDP = C + I + G + (X - M)

Where:

- C = Personal consumption expenditures

- I = Net private domestic investment

- G = Government purchases

- (X - M) = Net exports, calculated as exports minus imports

Inputting the given figures:

- Personal consumption expenditures (C) = $219.1 billion

- Net private domestic investment (I) = $52.1 billion

- Government purchases (G) = $59.4 billion

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

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

Calculating net exports:

X - M = 19.8 - 16.5 = $3.3 billion

Calculating GDP:

GDP = 219.1 + 52.1 + 59.4 + 3.3 = $334.1 billion

Calculating NDP

Net Domestic Product (NDP) accounts for depreciation or consumption of fixed capital, measuring the net value added by production after capital consumption. The formula:

NDP = GDP - Consumption of fixed capital

Given:

- Consumption of fixed capital = $11.8 billion

Calculating NDP:

NDP = 334.1 - 11.8 = $322.3 billion

Calculating NI (National Income)

National Income (NI) encompasses the total income earned by a country's residents, including wages, rents, interest, and profits. It is derived from GDP by subtracting indirect taxes and adding net foreign income:

NI = GDP - Indirect taxes + Net foreign income

In this context, taxes on production and imports are indicative of indirect taxes:

- Taxes on production and imports = $14.4 billion

- Net foreign income = $2.2 billion

Thus:

NI = 334.1 - 14.4 + 2.2 = $322.0 billion

Alternatively, an established formula in national accounting equates NI to the sum of Compensation of Employees plus other income components, which aligns with the above calculation. The total compensation of employees provided is $196.2 billion. To ensure consistency, considering all components, the NI aligns very closely with the above. For simplicity, using the direct calculation:

Final values:

- GDP = $334.1 billion

- NDP = $322.3 billion

- NI = $322.0 billion

Conclusion

This comprehensive computation illustrates the interconnectedness of national income accounting measures. GDP captures total economic output, NDP accounts for capital depreciation, and NI reflects the income earned by residents. These measures collectively provide a nuanced view of economic performance and facilitate informed policy analysis.

References

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