amys card shop receive a shipment of valentines day cards in

amy\'s card shop receive a shipment of valentines day cards in December 2014 amy pays the wholesale distributor of the cards a total of $500 in February 2013 she sells the cards for a total of $700 what are the contribution of these transactions to GDP in the year 2012 and 2013?

Solution

These transaction contributes to calculation of GDP as Income Method i.e. NI (National Income ) is estimated by adding incomes earned by all factors of production for their factor services during a year.

Steps involved while reveiwing the contibutions of these transaction for the calculation of NI

1. Identifying the producer enterprises which employ factors of production.

2.Classification of factor- Income comprising of three groups .i.e - compenstion of employees, operating surplus & Mixed income of the self employed. we see from above question that amy has card shop & is shopkeeper ; so is self employed income. A self employed person provides his labour as well as his property in his work, it becomes very difficult to segregate wage income & non- wage income from his total earnings. Thus, his total earnings are mixed of income from property & enterpreneurship..Therefore, Amy as a small shopkeeper starts his business in his own shop employing his own labour & some capital.

3.Estimating factor Payments.

Factor payments by an individual enterprise= Number of units of factor employed * Income paid to each unit of the factor. By adding the factor payments of the enterprises in an individual sector, gives us factor payments of that individual sector. & by adding the incomes paid out by all the sectors of the domestic territory of the country, we get domestic factor income. In Short,

Domestic Factor Income / NDP_FC =   Compensation of Employees+Operating Surplus (Rent+ Interest +Profit)+Mixed Income of the Self-Employed.

We can find out NNPfc= NDPfc+Net Factor Income from Abroad.