Chapter 4 Journal

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ECO 2302

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Jan 9, 2024

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Thank you, Professor, for the assignment. I will start with the definition of Gross Domestic Product (GDP) and will discuss the differences between the income approach and expenditure approach for calculating GDP. GDP is defined as the total market value of goods and services produced by a nation (Fernando et al, 2023). GDP also provides a snapshot of a country’s economy and measures its growth rate. When a nation’s GDP is strong, companies would hire more employees and can afford to pay higher wages. That leads to more consumer spending and economic growth. The GDP expenditure approach calculates spending made by different groups. The formula is GDP = Consumption + Government Spending + Investment + Net Exports. The expenditure approach calculates the consumer spending, government spending, business investment and exports. The income approach adds up all the incomes generated by the goods and services produced. The formula is GDP = Total National Income + Sale Taxes + Depreciation + Net Foreign Factor Income (Ross et al, 2023) In this portion of the journal assignment, I will compare the classical economic theory that was used prior to the Great Depression to the Keynesian theory used after the Great Depression. The classical economic theory was based on a laissez-faire philosophy which view the economic downturns as the natural phases of the economy (McEachern, 2018). The Keynesian theory shifts the thinking of macroeconomics from the concept of aggregate supply to the concept of aggregate demand (University of Minnesota, n.d.). The Keynesian theory also emphasizes that the government should help the economy get out of its depression by increasing aggregate demand.

References McEachern, W. A. (2018). Econ Macro (6th ed.). Cengage Learning US. https://online.vitalsource.com/books/9781337671804 Fernando, J. et al (2023). Gross Domestic Product: Formula and How to Use it https://www.investopedia.com/terms/g/gdp.asp Ross, S. et al (2023). Calculating GDP With the Income Approach Calculating GDP With the Income Approach (investopedia.com) University of Minnesota (n.d.). The Great Depression and Keynesian Economics https://open.lib.umn.edu/principleseconomics/chapter/32-1-the-great-depression-and- keynesian-economics/

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