Item Amount Stock of Capital at end of year (K) 300 Change in Private Inventorie
ID: 1135021 • Letter: I
Question
Item
Amount
Stock of Capital at end of year (K)
300
Change in Private Inventories (CI)
-1
Compensation of Employees--Wages (W)
50
Consumption (C)
60
Consumption of Fixed Capital--Depreciation (DEPR)
9
Government Consumption and Gross Investment (G)
15
Gross Private Domestic Fixed Investment (FI)
13
Interest (INT)
8
Net Exports (XN)
-2
Profits (PROF)
6
Proprietors’ Income (PRIN)
3
Purchases of Stocks and Bonds (SB)
13
Rents (RENT)
4
Taxes on Production and Income (TAX)
5
1. (a) Compute Gross Private Domestic Investment (I). Show your work.
(b) Compute Gross Domestic Product (GDP) via the “expenditures” approach. Show your work.
2. (a) Compute National Income. Show your work.
(b) Compute Gross Domestic Income (GDI). Show your work.
3. Statistical Discrepancy (SD) is zero. What does that imply regarding the relationship between GDP and GDI? Explain carefully and thoroughly.
4. Two items in the list are negative. How can these items be negative and yet be components of GDP? Could these items be positive and still be components of GDP? Explain carefully and thoroughly.
5. Two items in the list are not components of GDP. Which are the items and why do they not enter GDP? Explain carefully and thoroughly.
Item
Amount
Stock of Capital at end of year (K)
300
Change in Private Inventories (CI)
-1
Compensation of Employees--Wages (W)
50
Consumption (C)
60
Consumption of Fixed Capital--Depreciation (DEPR)
9
Government Consumption and Gross Investment (G)
15
Gross Private Domestic Fixed Investment (FI)
13
Interest (INT)
8
Net Exports (XN)
-2
Profits (PROF)
6
Proprietors’ Income (PRIN)
3
Purchases of Stocks and Bonds (SB)
13
Rents (RENT)
4
Taxes on Production and Income (TAX)
5
Explanation / Answer
GDP (Gross domestic product)= Sum total of all market values of final goods and services produced in a country in a year.
Formula: C+I+G+(Export-Import).
1. a.Gross private domestic investment (GPDI)= 13-1=12 ( GPDI is a business capital invested in domestic production either through the purchase of fixed property or inventory)
b. GDP=C+I+G+(X-M)
Therefore: 60+12+15-2= 85
2. National income : In this case, GDP=National income
3. GDP and GDI is same because there is no income received from abroad or income sent abroad.
4. Negative items are a) exports and change in private inventory
Exports can be negative if imports are more than exports.
Change in private inventory means purchased inventory is more goods than sold.
5. Stock of capital and income tax is not a part of GDP. Stock of capital is already included in investment and income tax is already included as government spending.
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