[student007]

I have a few questions about some aspects of GDP:

1. Can someone clear up the concept of imputed rent? Is it like amortization of a house, i.e. the cost of the house spread over time, or is it something else? Can you please clear this concept up?

2. GNP = GDP - net income from foreigners. How can this be? What about national citizens who make profits in investments in other countries? Isn't that included in GNP?

Thanks

[CaptainForest]

According to http://en.wikipedia.org/wiki/Imputed_rent, imputed rent is:

Imputed rent is the economic theory of imputation applied to real estate.

In owner-occupancy, the landlord-tenant relationship is short-circuited. Consider two people, A and B, each of whom owns property. If A lives in B's property, and B lives in A's, two financial transactions take place - each pays rent to the other. But if A and B are both owner occupiers, no money changes hands, even though the same economic relationships exists; there are still two owners and two occupiers, but the transactions between them no longer go through the market. The amount that would have changed hands had the owner and occupier been different persons is called the imputed rent. The effect of owner occupancy is therefore that

- the imputed rents disappear from measures of national income and output, unless figures are added to take them into account.
- Government loses the opportunity to tax the transaction. Sometimes governments have attempted to tax the imputed rent (Schedule A of the U.K. income tax used to do this), but this tends to be unpopular.

The concept of imputed rent is controversial and considered by some to be a fallacy. [1] It involves a fundamental question about the nature of value and presupposes that a landlord-tenant relationship is the natural state of ownership-use of property. Arguments against taxes on imputed rent include the claim that the same tax could be applied against the potential rent of any rentable, but unrented property.

Gross National Product (GNP) is (according to http://www.canadianeconomy.gc.ca/eng...onomy/gnp.html):

Canada's annual gross national product (GNP) is the total income that residents of the country earn within the year. It includes the wages and salaries of employees, the profits realized by entrepreneurs and stockholders, the rents received by landlords, and the indirect taxes (such as the Goods and Services Tax, the gasoline tax and the provincial retail sales taxes) collected by governments. It includes the dividends that Canadians receive from abroad, minus dividends paid by businesses operating in Canada to foreigners.

The GNP is calculated in such a way that it is also equal to total spending on Canadians' goods and services. In other words, total income must equal total spending when the sums are done for the country as a whole. Thus, GNP is the sum of spending by consumers on food, clothing, rent, durable goods, personal services and other items, plus government expenditures on goods and services, plus business outlays on capital equipment and new factories and commercial buildings, plus the spending of foreigners when they buy exports of Canadians. Imported goods and services are deducted in the calculation because they are not produced by Canadians.

When you are a resident of a country, you are required to pay tax on your WORLDWIDE income.

[student007]

Thanks. Now I have another question. I just read that an increase in gov't spending leads to an increase in interest rates and a decrease in investment, because Y-T (disposable income) remains unchanged. Why is this? To prevent the increase in interest rate and decrease in investment, can't the gov't just increase taxes? Why must they be kept constant?