8.4 Other Measures of Total Production and Total Income

Gross national product (GNP)

The value of all final goods and services produced by residents of the United States, even if that production takes place outside the United States. For example, Ford has assembly plants in the United Kingdom, and Toyota has assembly plants in the United States. GNP includes foreign production by U.S. firms, but excludes U.S. production by foreign firms.

Which component of gross domestic income is the largest?

Wages

Which of the following do we subtract from GDP to obtain national income?

• Depreciation

If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast?

• Disposable personal income

In the U.S., gross domestic product (GDP) and gross national product (GNP) are close in value. Under what circumstances would GNP be much larger than GDP?

• Few foreign citizens currently work in the U.S. and few foreign firms maintain facilities in the U.S. • Many U.S. citizens currently work in foreign countries while few foreign citizens currently work in the U.S. • Few foreign firms maintain facilities in the U.S. while many U.S. firms are currently operating abroad.

When a significant fraction of domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows:

• GDP will be much larger than GNP

"Irish progress, both economic and fiscal, is typically measured using GDP .... But for an economy where foreign firms are so dominant, GNP ... is more relevant." The author's reasoning is based on the fact that:

• Gross domestic product (GDP) is the value of final goods and services produced within Ireland whereas gross national product (GNP) is the value of final goods and services produced by residents of Ireland, even if the production takes place outside Ireland.

Suppose the amount the federal government collects in personal income taxes increases, while the level of GDP remains the same. What will happen to the values of national income, personal income, and disposable personal income? National income will___________ personal income will_________ Disposable personal income will_________

• National Income will_________ (remain the same) • Personal income will _________(remain the same) • Disposable personal income will_______ (decrease)

To calculate personal income from national income, which of the following must the BEA do?

• add government transfer payments

"Corporate profits are much too high: Most corporations make profits equal to 50 percent of the price of the products they sell." (correct or incorrect)

• incorrect: The largest component of gross domestic income is wages, which are about three times as large as profit.

Disposable personal income is equal to:

• personal income minus personal tax payments.

In 2014, the largest component of gross domestic income was:

• wages

In the United States, the difference between GNP and GDP is ______ than that of many other countries.

Smaller

U.S. Gross National Product (GNP) differs from U.S. Gross Domestic Product (GDP) in which of the following ways?

•GNP considers production that occurs outside the U.S. •GNP is the value of final goods and services produced by residents of the U.S.

GDP is:

•Gross domestic income=Wages + Interest + Profits + Rent. •Gross domestic income is GDP calculated as the sum of income payments to households. •Gross domestic income includes sales tax, depreciation and other items.