Income Approach to GDP counting

Compensation of Employees Compensation of Employees Rents Rents Interest Interest Proprietors’ Incomes Proprietors’ Incomes Corporate Profits Corporate Profits Corporate Income TaxesCorporate Income Taxes DividendsDividends Undistributed Corporate ProfitsUndistributed Corporate Profits THE INCOME APPROACH

Using the NI amount we add: Consumption of Fixed Capital (called Depreciation) Indirect Business Taxes Net Foreign Factor Income Equating the NI to the GDP Now, the NI will be equal to the GDP!

Net Domestic Product By subtracting DEPRECIATION or Consumption of Fixed Capital from the GDP, we now have a figure for the true amount of new goods and services.

Personal Income Subtracting from NI, losses to income (Social Security contribution, corporate profits and retained earnings) Subtracting from NI, losses to income (Social Security contribution, corporate profits and retained earnings) Adding to NI a source of income (transfer payments) Adding to NI a source of income (transfer payments)

Disposable Income Subtracting from PI, the dollars lost to taxes, yields the Disposable Income. Subtracting from PI, the dollars lost to taxes, yields the Disposable Income. This is the “bottom” line of national income accounting. This figure of Disposable Income gives us the funds available for spending and/or saving.

Gross Domestic Product $10,446 (GDP) Consumption of fixed capital -1,393 Net Domestic Product $9,053 (NDP) Net foreign factor income earned in the U.S Indirect business taxes -695 National Income $8,348 (NI) Social security contributions -748 Corporate income taxes -213 Undistributed corporate profits -141 Transfer payments +1,683 Personal Income $8,929 (PI) Personal Taxes -1,113 Disposable Income $7,816 (DI) U.S. GDP, NDP, NI, PI, & DI, 2002

C = $ Ig = $ G + $ Xn = $ GDP Gross Domestic Product (GDP) - Consumption of fixed capital NDP Net Domestic Product (NDP) - Net For. Factor Inc. Earn. U.S. -Indirect business taxes NI National Income (NI) - Undistributed Corporate Profits -Corporate income taxes -Social Security Contributions +Transfer payments PI Personal Income (PI) - Personal Taxes DI Disposable Income (DI) National Income Practice – “How To Do It” National Income Practice – “How To Do It” Personal taxes 403-U ndistributed corp. profits 46 Personal taxes 403-U ndistributed corp. profits 46 Imports 362-Social Security contrib.169 Imports 362-Social Security contrib.169 +Transfer payments 283Personal consumption 2,316 +Transfer payments 283Personal consumption 2,316 -C orporate I ncome T axes 88Gross private domes invest C orporate I ncome T axes 88Gross private domes invest. 503 Indirect business taxes 231Government purchases 673 Indirect business taxes 231Government purchases 673 Exports 465Depreciation 307 Exports 465Depreciation 307 N.F.F.I.E. in the U.S. 12 ______ $_ _____ ______$_______ $_ _____ ______ _______ $_ ______ ________ $ _______ 2, , , , , ,622

C = $ Ig = $ G + $ Xn = $ Gross Domestic Product (GDP) - Consumption of fixed capital Net Domestic Product (NDP) - Net For. Factor Inc. Earn. U.S. -Indirect business taxes National Income (NI) - Undistributed Corporate Profits -Corporate income taxes -Social Security Contributions +Transfer payments Personal Income (PI) - Personal Taxes Disposable Income (DI) NIA Practice Personal taxes50U ndistributed corp. profits 45 Exports34Social Security contrib.25 Imports32Personal consumption 260 Transfer payments32Gross private domes invest. 75 Corporate income taxes 40Government purchases 100 I ndirect business taxes 30Depreciation 15 N.F.F.I.E. in the U.S $ $ $ $ 284