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Chapter 7: Q7. (page 152)

Suppose GDP is \(15 trillion, with \)8 trillion coming from consumption, \(2.5 trillion coming from gross investment, \)3.5 trillion coming from government expenditures, and \(1 trillion coming from net exports. Also suppose that across the whole economy, personal income is \)12 trillion. If the government collects \(1.5 trillion in personal taxes, then disposable income is:

a. \)13.5 trillion

b. \(12.0 trillion

c. \)10.5 trillion

d. none of the above

Short Answer

Expert verified

Option (c): $10.5 trillion

Step by step solution

01

Meaning of personal disposable income 

The personal disposable income is the earned or unearned income of the households that they are free to use in whichever way they want to, after all, tax deductions.The earned income is the wages or the salaries of households, and unearned income refers to the public transfer payments made to the households like welfare payments, education payments, unemployment allowances.

The disposable income is what is left after paying taxes. For example, if Eric earns $100,000 in a year and pays $10,000 as taxes every year, his disposable income will be $90,000 per year.

02

Explanation for choosing option ‘c’

If $12 trillion is the personal income and personal tax collection is $1.5 trillion, then the disposable income is personal income -personal taxes; that is $10.5 trillion (=12 trillion-$1.5 trillion). Hence, option c is the correct option.

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Most popular questions from this chapter

Suppose GDP is \(16 trillion, with \)10 trillion coming from consumption, \(2 trillion coming from gross investment, \)3.5 trillion coming from government expenditures, and \(500 billion coming from net exports. Also suppose that across the whole economy, depreciation (consumption of fixed capital) totals \)1 trillion. From these figures, we see that net domestic product equals:

a. \(17.0 trillion

b. \)16.0 trillion

c. $15.5 trillion

d. none of the above

Using the following national income accounting data, compute (a) GDP, (b) NDP, and (c) NI. All figures are in billions.

Why do economists include only final goods and services when measuring GDP? Why don鈥檛 they include the value of the stocks and bonds bought and sold? Why don鈥檛 they include the value of the used furniture bought and sold?

Suppose that California imposes a sales tax of 10 percent on all goods and services. A Californian named Ralph then goes into a home improvement store in the state capital of Sacramento and buys a leaf blower that is priced at \(200. With the 10 percent sales tax, his total comes to \)220. How much of the \(220 paid by Ralph is in the national income and product accounts as private income (employee compensation, rents, interest, proprietor鈥檚 income, and corporate profits)?

a. \)220

b. \(200

c. \)180

d. none of the above

What is the difference between gross private domestic investment and net private domestic investment? If you were to determine net domestic product (NDP) through the expenditures approach, which of these two measures of investment spending would be appropriate? Explain.
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