Indirect business taxes and capital consumption allowance are not income, yet they are included in the calculation of GDP as income received. Why do we add these two non-income components to the other components of income (like wages, rent, interests, profits, and net factor income from abroad) to find GDP?
Indirect business taxes and capital consumption allowance are not income, yet they are included in the calculation of GDP as income received. Why do we add these two non-income components to the other components of income (like wages, rent, interests, profits, and net factor income from abroad) to find GDP?
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There are five questions. Each question is worth one point. Consider the following list of data for a country for a given year. Amounts are in billions of dollars. Your answers should be based on the U.S. national-accounts. In your answers, you may refer to the items by the abbreviations shown.
| Item | Amount |
| Consumption (C) | 65 |
| Depreciation (DEPR) | 20 |
| Government Consumption and Gross Investment (G) | 18 |
| Gross Private Domestic Investment (I) | 30 |
| Household Production (HP) | 20 |
| Household Purchases of Stocks and Bonds (ST) | 50 |
| Interest (INT) | 2 |
| Net Exports of Goods and Services (NX) | -3 |
| Net Income of Foreigners (NIF) | -1 |
| Profits (PROF) | 7 |
| Proprietorsâ Income (PRIN) | 4 |
| Rent (RENT) | 4 |
| Sales Taxes (STAX) | 4 |
| Wages (W) | 70 |
1. Compute national income. Show your work.
2. Compute GDP via the âresource-cost incomeâ approach. Show your work.
3. Compute GDP via the âexpendituresâ approach. Show your work.
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 part of the answers to 1-3. Which are the items and why do they not enter the answers? Explain carefully and thoroughly.
