National Income Accounts CHAPTER 22 Appendix © 2003 South-Western/Thomson Learning

National Income Captures all income earned by American-owned resources, whether located in the United States or abroad Results from several adjustments to net domestic product Adds net earnings from American resources abroad Subtracts indirect business taxes, net of subsidies

Exhibit 6: Deriving Net Domestic Product and National Income Using 2001 Data (in trillions of dollars) Gross domestic product (GDP) $10.20 Minus depreciation –1.34 Net domestic product 8.86 Plus net earnings of American resources abroad minus indirect business taxes (net of subsidies) –0.65 National income $8.21

Personal Income Personal income adds to national income the income received but not earned and subtracts the income earned but not received Income earned by not received in the current period includes The employer’s share of Social Security taxes Corporate income taxes Undistributed corporate profits Income received but not earned in the current period includes Government transfer payments Receipts from private pension plans Interest paid by government and by consumers

Exhibit 7: Deriving Personal Income and Disposable Income Using 2001 Data (in trillions of dollars) National income $8.21 Minus income earned but not received (Social Security taxes, corporate income taxes, undistributed corporate profits) –2.05 Plus income received but not earned (government and business transfers, net personal interest income) 2.56 Personal income 8.72 Minus personal tax and nontax charges –1.35 Disposable income $6.02

Disposable Income Subtracting personal taxes and other government charges from personal income yields disposable income Disposable income is the amount available for spending or saving Take-home pay

Summary Income Statement Exhibit 8 presents an annual income statement for the entire economy The upper portion lists aggregate expenditure which consists of Consumption Gross investment Government purchases Net exports

Exhibit 8a: Expenditure and Income Statement for the U. S Exhibit 8a: Expenditure and Income Statement for the U.S. Economy Using 2001 data ($ trillions) Aggregate Expenditure Consumption (C) $7.05 Gross investment (I) 1.67 Government purchases (G) 1.84 Net exports (X – M) –0.36 GDP $10.20

Summary Income Statement The income from this expenditure is allocated in the lower portion of Exhibit Employee compensation Largest income source Includes money wages and employer contribution to cover Social Security taxes, medical insurance and other fringe benefits Proprietors’ income includes the earnings of unincorporated businesses Corporate profits are the net revenues received by businesses before subtracting corporate income taxes

Exhibit 8b: Expenditure and Income Statement for the U. S Exhibit 8b: Expenditure and Income Statement for the U.S. Economy Using 1998 Data ($ trillions) Allocation of Income Depreciation $1.34 Net earnings of American resources abroad –0.02 Net indirect business taxes 0.63 Compensation of employees 6.01 Proprietors’ income 0.75 Corporate profits 0.76 Net interest 0.55 Rental income of persons 0.18 GDP $10.20

Summary Income Statement Net interest is the interest received by individuals, excluding interest paid by consumers to businesses and interest paid by government Rental income of persons consists primarily of the imputed rental value of owner-occupied housing minus the cost of owning that property