Foundations of Economics, Student Value Edition Plus MyLab Economics with eText -- Access Card Package (8th Edition)
8th Edition
ISBN: 9780134641843
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Question
Chapter 21, Problem 1SPPA
To determine
Total income, net taxes and
Expert Solution & Answer
Explanation of Solution
Figure 1 represents the circular flow of income in the economy. The information provided in the given case indicates that government expenditure in the economy, shown by 'U' in Figure 1, is $2 trillion. The variable 'W' that reflects consumption expenditure in the economy, is worth $7 trillion.
In the similar manner, the flow shown by variable 'J' is the investment expenditure and 'Z' shows the flow of net exports. These expenditures are equal to $1.5 trillion and $0 respectively.
In an economy, the total income is the factor income earned by the factors o9f production. Here, the factor market is paying an income shown by 'Q' in Figure 1. This value is not provided. Hence, use the
Under expenditure method, GDP is computed as the sum of four expenditures:
Here 'C' is the consumption spending, 'I' is the investment spending, 'G' is the spending incurred by the government and 'NX' is the net exports. Data indicates that the value of 'C' is $7 trillion, and that of 'I' is $1.5 trillion. Net exports are worth $0 and 'G' is $2 trillion.
Use the expenditure method to find GDP as well as total income:
Total income as well as GDP is both worth. 
trillionNet taxes represent the amount of taxes paid by the household that are subjected to all the cash benefits received by them. In figure 1, this is represented by a flow of variable 'R'. Note that there is no value provide for net taxes. Hence, use the following expression for net taxes:
In this case, 'S' is the saving and is shown by 'V' in figure 1.
The value of 'V' is $1.5 trillion so that saving is $1.5 trillion. Given that 'C' is $7 trillion and 'Y' is found to be $10.5 trillion. Use these values to find net taxes:
Hence, net taxes are worth$2 trillion.
Economics Concept Introduction
Concept Introduction:
Circular flow of income is a tool that is used to represents the flow of real and monetary variables among various sectors in the economy. The nation has four major market participants in the form of firms, households, financial institutions and the government. The flow of goods and services is in the opposite direction to the flow of money.
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Students have asked these similar questions
The figure shows the flows of expenditure and income on Big Foot Island.
In 2016, W was $56 billion; V was $20 billion; U was $15 billion; J was $25 billion;
and Z was $2 billion.
Calculate total expenditure and total taxes.
1- Total income is $….
billion.
2- Net taxes equal $… billion.
Suppose a small economy has two income tax rates: 15% for all income up to $50,000 and 30% for any income earned above $50,000. Suppose that the economy has a Government Budget for this year (year 1) of $58,500, and a total of five individuals earning the following income: Amy $20,000, Betty $40,000, Charlie $60,000, Dimitry $80,000, Evelyn $100,000. In chapter 5 we saw that GDP can be calculated in two ways, via the expenditure approach or the income approach, and that when the income approach is used, there must be adjustments made to National Income, specifically adding the Consumption of Fixed Capital and a Statistical Discrepancy. For the sake of simplicity, let's imagine that National Income is equal to GDP, in other words the Fixed Capital and the Statistical Discrepancy are equal to zero. Now assume that a recession (triggered by a reduction of Aggregate Demand) causes each of the five incomes to fall by 25%. In other words, income is 75% of what they used to be.
What is the…
Suppose a small economy has two income tax rates: 15% for all income up to $50,000 and 30% for any income earned above $50,000. Suppose that the economy has a Government Budget for this year (year 1) of $58,500, and a total of five individuals earning the following income: Amy $20,000, Betty $40,000, Charlie $60,000, Dimitry $80,000, Evelyn $100,000. In chapter 5 we saw that GDP can be calculated in two ways, via the expenditure approach or the income approach, and that when the income approach is used, there must be adjustments made to National Income, specifically adding the Consumption of Fixed Capital and a Statistical Discrepancy. For the sake of simplicity, let's imagine that National Income is equal to GDP, in other words the Fixed Capital and the Statistical Discrepancy are equal to zero.
6. What is the Nation's Income in year 2?
Chapter 21 Solutions
Foundations of Economics, Student Value Edition Plus MyLab Economics with eText -- Access Card Package (8th Edition)
Ch. 21.A - Prob. 1SPPCh. 21.A - Prob. 2SPPCh. 21.A - Prob. 3SPPCh. 21.A - Prob. 4SPPCh. 21.A - Prob. 5SPPCh. 21.A - Prob. 6SPPCh. 21.A - Prob. 7SPPCh. 21.A - Prob. 1IAPCh. 21.A - Prob. 2IAPCh. 21.A - Prob. 3IAP
Ch. 21.A - Prob. 4IAPCh. 21.A - Prob. 5IAPCh. 21.A - Prob. 6IAPCh. 21.A - Prob. 7IAPCh. 21 - Prob. 1SPPACh. 21 - Prob. 2SPPACh. 21 - Prob. 3SPPACh. 21 - Prob. 4SPPACh. 21 - Prob. 5SPPACh. 21 - Prob. 6SPPACh. 21 - Prob. 7SPPACh. 21 - Prob. 8SPPACh. 21 - Prob. 9SPPACh. 21 - Prob. 10SPPACh. 21 - Prob. 1IAPACh. 21 - Prob. 2IAPACh. 21 - Prob. 3IAPACh. 21 - Prob. 4IAPACh. 21 - Prob. 5IAPACh. 21 - Prob. 6IAPACh. 21 - Prob. 7IAPACh. 21 - Prob. 8IAPACh. 21 - Prob. 9IAPACh. 21 - Prob. 10IAPACh. 21 - Prob. 11IAPACh. 21 - Prob. 12IAPACh. 21 - Prob. 1MCQCh. 21 - Prob. 2MCQCh. 21 - Prob. 3MCQCh. 21 - Prob. 4MCQCh. 21 - Prob. 5MCQCh. 21 - Prob. 6MCQCh. 21 - Prob. 7MCQ
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