{"id":1052,"date":"2019-10-10T20:04:00","date_gmt":"2019-10-10T20:04:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=1052"},"modified":"2026-01-28T10:18:29","modified_gmt":"2026-01-28T10:18:29","slug":"gdp-national-income-personal-income-personal-disposable-income","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/gdp-national-income-personal-income-personal-disposable-income\/","title":{"rendered":"Comparison Among GDP, National Income, Personal Income, and Personal Disposable Income"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Aggregate Output, Prices, And Economic Growth (2022 Level I CFA\u00ae Exam \u2013 Reading 10)\",\n  \"description\": \"This video lesson covers aggregate output, prices, and economic growth, explaining GDP calculation methods, income vs. expenditure approaches, nominal vs. real GDP, and economic growth factors. It also explores business cycles, IS-LM models, aggregate demand and supply shifts, and total factor productivity\u2019s role in long-term economic expansion and stability.\",\n  \"uploadDate\": \"2018-11-06T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/cRMasYNNsVA\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/youtu.be\/cRMasYNNsVA\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/cRMasYNNsVA\",\n  \"duration\": \"PT34M44S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"How do you calculate GDP using the expenditure approach?\",\n    \"text\": \"Assume that the national account of a small island for 2018 showed that the government received $15 million as revenue and spent $2 million on purchases and expenditure. National investment stood at $4 million, while the island recorded $10 million worth of exports and $5 million worth of imports. If consumption expenditure on final goods and services by consumers for that year amounted to $8 million, the GDP for that year is closest to:\\n\\nA. $19 million\\n\\nB. $34 million\\n\\nC. $11 million\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A: $19 million. GDP is calculated using the expenditure approach as GDP = C + I + G + (X \u2212 M). Substituting the given values: consumption (C) = $8 million, investment (I) = $4 million, government purchases (G) = $2 million, exports (X) = $10 million, and imports (M) = $5 million. Therefore, GDP = 8 + 4 + 2 + (10 \u2212 5) = $19 million.\"\n    }\n  }\n}\n<\/script>\n\n\n\n\n<p>\n  <iframe loading=\"lazy\"\n    src=\"\/\/www.youtube.com\/embed\/cRMasYNNsVA\"\n    width=\"611\"\n    height=\"343\"\n    allowfullscreen=\"allowfullscreen\">\n  <\/iframe>\n<\/p>\n\n\n<h2><strong>GDP<\/strong><\/h2>\n<p>GDP stands for Gross Domestic Product. It refers to the market value of all goods and services produced within an economy in a given period of time. Equivalently, GDP also refers to the total income earned by each household, company, and government within a given period of time. Therefore, GDP measures the flow of personal income and output in an economy.<\/p>\n<p><!--more--><\/p>\n<h3><strong>GDP Using the Expenditure Approach<\/strong><\/h3>\n<p>GDP = Consumer spending on goods and services (C)<\/p>\n<p>+ Business gross fixed investment (I)<\/p>\n<p>+ Change in inventories (I)<\/p>\n<p>+ Government spending on goods and services (G)<\/p>\n<p>+ Government gross fixed investment (G)<\/p>\n<p>+ Exports \u2013 Imports (X \u2212 M)<\/p>\n<p>+ Statistical discrepancy<\/p>\n<p>Exam tip: The easiest way to remember this formula is the following:<\/p>\n<p>GDP = C + I + G + (X \u2013 M)<\/p>\n<h3><strong>GDP Using the Income Approach<\/strong><\/h3>\n<p>GDP = National income (see the next section)<\/p>\n<p>+ Capital consumption allowance (a portion of GDP due to depreciation)<\/p>\n<p>+ Statistical discrepancy<\/p>\n<p>Note that the statistical discrepancy is equal to gross domestic product less gross domestic income.<\/p>\n<h2><strong>National Income<\/strong><\/h2>\n<p>National income refers to the income received by all factors of production employed in generating the final output. It is calculated as follows:<\/p>\n<p>National Income = Compensation of employees<\/p>\n<p>+ Corporate and government enterprise profits before taxes<\/p>\n<p>+ Interest income<\/p>\n<p>+ Unincorporated net income of businesses<\/p>\n<p>+ Rent<\/p>\n<p>+ Indirect business taxes \u2013 subsidies.<\/p>\n<h2><strong>Personal Income<\/strong><\/h2>\n<p>Personal income refers to the broad measure of household income. As such, it measures the purchasing power of consumers. It consists of all the income either earned or not earned by households. It can be calculated as follows:<\/p>\n<p>Personal Income = National Income<\/p>\n<p>&#8211; Indirect business taxes<\/p>\n<p>&#8211; Corporate income taxes<\/p>\n<p>&#8211; Undistributed corporate profits<\/p>\n<p>+\u00a0 Transfer payments.<\/p>\n<h2><strong>Personal Disposable Income (PDI)<\/strong><\/h2>\n<p>Personal disposable income refers to personal income minus taxes at a personal level. It measures the amount of net income that remains after households have paid all their tax levies. It also represents the amount households will spend on goods and services or will save to invest.<\/p>\n<p>Therefore, household savings equals personal disposable income (PDI) minus consumption expenditures, interest paid to businesses, and personal transfer payments.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Assume that the national account of a small island for 2018 showed that the government had received $15 million as revenue and spent $2 million on purchases and expenditure. National investment stood at $4 million, while the island recorded $10 million worth of export with a $5 million worth of import. If the consumption expenditure on final goods and services by consumers for that year amounted to $8 million, the\u00a0 GDP for that year is <em>closest<\/em> to:<\/p>\n<p>A. $19 million<\/p>\n<p>B. $34 million<\/p>\n<p>C. $11 million<\/p>\n<p><strong>Solution <\/strong><\/p>\n<p>The correct answer is A.<\/p>\n<p>GDP = C + I + G + (X \u2013 M)<\/p>\n<p>C = Consumption expenditure = $8 million<\/p>\n<p>I = Investments = $4 million<\/p>\n<p>G = Government purchases = $2 million<\/p>\n<p>E = Exports = $10 million<\/p>\n<p>M = Imports = $5 million<\/p>\n<p>Thus, GDP = 8 + 4 + 2 + (10 \u2013 5) = $19 million<\/p>\n<\/blockquote>\n<div class=\"notes_inv\">\n<hr \/>\n<p><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/learning-sessions-curriculum-economics\/\"><em>Economics &#8211; Learning Sessions<\/em><\/a><\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>GDP GDP stands for Gross Domestic Product. It refers to the market value of all goods and services produced within an economy in a given period of time. Equivalently, GDP also refers to the total income earned by each household,&#8230;<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"class_list":["post-1052","post","type-post","status-publish","format-standard","hentry","category-economics","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>GDP, National, Personal &amp; Disposable Income | CFA Level 1<\/title>\n<meta name=\"description\" content=\"GDP measures total economic output, while national, personal, and disposable incomes reflect earnings at different levels in the economy.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link 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