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Letís begin with personal income (PI) value. In modern times with an increased public expenditure, the government carries undertakes a considerable amount of transfer of incomes in the form of gifts, loans, assistance etc. Some citizens may also receive similar donations from foreign countries. With such gratuities the individualís capacity to spend will be enhanced. However, this additional compensation is not a part of the NI. On the other hand big corporate agencies are subjected to corporate tax to the extent of which national income reduces before it falls in private hands. Some corporate bodies may also set aside part of their profits in an undistributed (UP) form to be utilized for future investment, which further reduces the size of the NI before it becomes Personal Income. Therefore we have:

NNI - (CT + UP) + Unearned income = PI

1190 - (80 + 90) + 310 = 1330

where CT = 80, UP = 90 and Unearned income = 310

In a reverse operation we have:

PI - Unearned Income + (CT + UP) = NNI

1330 - 310 + 170 = 1190

While moving on from personal income to disposable income (DI) we need to make some further adjustments. The entire personal income is not available for disposal and for private consumption or investment expenditure. Part of the Personal Income is taxed away in the form of personal income taxation (PT). The value of Disposable Income will be smaller than that of Personal Income to the extent of the tax. We have then:

PI - PT = DI

1330 - 130 = 1200, where PT = 130

In its reverse form:

DI + PT = PI

1200 + 130 = 1330

vi) Recap of the aggregates: After having defined and explained various national aggregates letís review them. Aggregates are to be interpreted as values in millions or billions in the currency of respective countries such as dollars, pounds, marks, francs, rupees, yens etc.

1. GNP = GNI = 1700

2. GDP = GNP - N + F = 1700 - 230 + 310 = 1780

3. NNP = GNP - D = 1700 - 170 = 1530

4. NNPMP = 1530

NNPFC = NNPMP - IT + S

            =1530 460 + 120

            =1190

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Index

3. 1 Macro Aggregates
3.2 Unemployment
3.3 Inflation

Chapter 4

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