Question

Q1.One day, Barry the Barber collects $400 for haircuts. Over this day, his equipment deteriorates in value by $50. Of the remaining $350, Barry sends $30 to the government in sales taxes, takes home $220 in wages, and retains $100 in his business to add new equipment in the future. From the $220 that Barry takes home, he pays $70 in income taxes. Based on this information, compute Barry’s contribution to the following measures of income:

(i) Gross domestic product

(ii) Net national product

(iii) National income

(iv) Personal income

(v) Disposable personal income

Answer 1

(i) Gross domestic product

The money collected from the haircut is the gross domestic product.

Gross domestic product GDP = $400

ii) Net national product

Is the difference between the contribution towards the GDP and depreciation.

NNP = contribution to GDP – Depriciation

$= \$400 - \$50$

= $350

Net national product = $350

iii) The national income includes the total income earned by the residents of the country. The contribution to national income is same as the NNP.

National income = $350

iv) Personal income is the difference between national income and retained earnings.

Personal income = National income – Retained earnings

$= \$350 - (\$100 + \$30)$

= $220

Personal income = $220

v) Disposable personal income is the difference between the personal income and personal tax.

Disposable personal income = Personal income – Personal tax

$= \$220 - \$70$

= $150

Disposable personal income $150