National Income- Assignment I

National Income- Assignment I

1. From the following find a) national income, b) personal income c) personal disposable income and personal saving
   

• Compensation of Employees             $ 1866.3
  
• Business interest payments             $ 264.9
  
• Rental income of persons             $ 34.1
  
• Corporate profits                 $ 164.8
  
• Proprietors' income                 $ 120.3
  
• Corporate dividends                 $ 66.4
  
• Social Security Contributions         $ 253.0
  
• Personal Taxes                 $ 402.1
  
• Interest paid by consumers             $ 64.4
  
• Interest paid by government             $ 105.1
  
• Government and business transfers         $ 374.5
  
• Personal Consumption expenditure         $ 1991.9
  

  
   

1. Why GDP matters for individuals?
   

   
    

2. Explain the effect of the following on GDP.
   
   1. The discovery of a new, easy-to-grow strain of wheat increases farm harvest
      
   2. Increased hostility between unions and management sparks a rash of strikes
      
   3. More high-school students drop out of school to take jobs mowing lawns
      
   4. Father around the country reduce their work-weeks to spend more time with their children
      
   5. Firms experience falling demand, causing them to lay off workers
      

1) Calculation of national income, personal income, personal disposable income and personal saving from the given data:

Headings	Amounts in Rs
Compensation of Employees	1866.3
Business interest payments	264.9
Rental income of persons	34.1
Corporate profits	164.8
Proprietors' income	120.3
National Income	2450.4
Corporate profits	-164.8
Social Security Contributions	-253
Corporate dividends	66.4
Interest paid by government	105.1
Government and business transfers	374.5
Personal Income	2578.6
Personal Taxes	-402.1
Personal Disposable Income	2176.5
Interest paid by consumers	-64.4
Personal Consumption expenditure	-1991.9
Personal Saving	120.2

 

 

 

 

 

 

 

 

 

 

 

 

 

2) Why GDP matters for individuals?

A gross domestic product (GDP) is one of the ways of measuring the size of its economy. GDP is defined as the value of final goods and services produced within the country. It includes domestically earned income by foreigners, and excludes income earned by nationals on the foreign countries. The gross domestic product (GDP) is one the primary indicators used to measure the position of a country's economy. It represents the total monetary value of all goods and services produced over a specific time period within an economic territory. Usually, GDP is expressed as a comparison to the base year. For example, if the GDP is increased by 3%, this is thought to mean that the economy has grown by 3% over the last year.

Measuring GDP is complicated, but at its most basic, the calculation can be done in one of two ways: either by income approach (adding up what everyone earned in a year), or by expenditure method (adding up what everyone spent). Logically, both measures should arrive at roughly the same total.

The income approach, which is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports.

As of now it becomes clear that economic production and growth, what GDP represents, has a large impact on nearly every individual within that economy. For example, when the economy is prosperous, there will typically seen low unemployment and wage increases as businesses demand labor to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the individual. It's not hard to understand why a bad economy usually means lower profits for companies, which in turn means unemployment and least wages. Individuals' economies are directly affected by its GDP growth. So change in GDP, whether up or down, usually has a significant effect on the individual.

But the research is going on economics as like in other subject matter. Still there are lots of confusions prevailed. While discussing today there arises one controversy. The controversy was, "If a poor person in a wealthy country has a higher material living standard than a "rich" person in a poor country, is the first person "better off" than the second. In this type of case the real picture cannot be represented by GDP.

 

3) Explain the effect of following on GDP ?

 

I).The discovery of a new, easy-to-grow strain of wheat increases farm harvest?

The discovery of new, easy to grow strains of wheat will increases the production of wheat which further will increase the income of farmer. With the increased income of farmer, countries economy will also effected. More employment will be generated in country and more profit will be earned by farmers which will push the GDP upward. So the discovery of a new, easy-to-grow strain of wheat increases farm harvest and increase the GDP higher.

II) Increased hostility between unions and manager sparks rash of strikes

Increased clash between unions and managers directly effect the production of goods. If there is least production of goods than least profit will be generated. The strike on company increases more unemployment. So the increased hostility between unions and manager sparks rash of strike which will effect on production which will further effect in downward shifting GDP of the country

III) More high school students drop out of school to jobs mowing lawns

In short term it can help GDP to grow because unemployed school children will be employed and earn money. But in long run, it will create a negative impact to the GDP as the productivity of students will be least because of their concentration on job rather than study. More over the students are least paid when they are recruited to mowing lawn so there will not be remarkable increase in GDP.

IV) Father around the country reduces their work-weeks to spend more time with children's.

Father around the country reduces their work-weeks to spend more time with children's will effect in country's economy. Fathers who work and earn will work no more. The income of fathers will be less which will further decrease the country's GDP. So the Father around the country reduces their work-weeks to spend more time with children's will decrease the GDP.

 

V) Firms experience falling demand, causing them to lay off workers.

The Firms experience falling demand, causing them to lay off workers. This will have adverse impact on the GDP as the workers will be lay off. The falling demand means itself not good economic condition of the company which will have negative effect on GDP and also the unemployed worker will have less money to spend because of their decreased purchasing power. So when the Firms experience falling demand which further cause them to lay off workers had negative impact on GDP and will pull down GDP to lower rate.

There will be least circulation of economy whc because the production decreases as well as the purchasing power of the worker also decreases.