(Value in billions of dollars)

Question

Consumption = 140
Business fixed and residential investment = 27
Inventory stock at the end of 2003 = 10
Inventory stock at the end of 2004 = 5
Depreciation = 12
Government outlays = 80
Government purchases = 65
Total government tax receipts = 60
Exports = 21
Imports = 17
Labor income = 126
Capital income = 70
Net income foreigners = 5
Indirect business taxes = 28

Calculate the following.:
1) Inventory investment
2) Net exports
3) Gross domestic products
4) Statistical discrepancy
5) National saving

(Verify that national saving equals investment plus net exports.)

I think the only right answer I got is next exports which is export – import and that would give me 4

Answer 1

Whew. To answer this problem, I needed to make some assumptions. First, the difference between government outlays and government purchases is transfer payments. Transfer payments are not components of GDP. Second, income to foreigners is income generated in the country but flowing out of the country. Such moneies are included in GDP but not included National Income.

1) Inventory investment is the net change in inventories. Inventories changed from 10 to 5, a net change of -5. (So, total investment (I) is planned business fixed and residential investments plus the net change in inventories)

2) Net Exports -- you got right

3) GDP = C+I+G+(X-M)
= 140 + (27-5) + 65 + (21-17)
= 231
In addition, GDP = National Income + depreciation (D) + indirect business taxes (IBT). And National Income (NI) is labor income plus capital income minus income going to foreigners (plus income by residents living over seas, which is not mentioned in this problem).
So, NI = 126 + 70 - 5 = 191
GDP = NI + D + IBT = 191 + 12 + 28 = 231

4) Statistical discrepancy = none.

5) National savings is Y-C-G = 231-140-65 = 26
Note I+(x-m) = 27-5 + 4 = 26.

I hope this helps.

Answer 2

hi,

thank u for ur help. for statistical discrepancy i got 211-201=10

i thought its bifference b/w calculation of GDP and the method of income of factor of production(Labor income+Capital Income+Net income foreigners.. lemme know if im wrong!!

thnx again for ur help