According to the table (in billions of dollars), Consumption $1,000 Interest $80 Corporate Profits $200 Government Purchases $480 Depreciation $120 Rent $300 Gross Private Investment $400 Compensation of Employees $750 Exports $100 Imports $180 Proprietor’s Income $220 Income Earned but not Received $110 Income Received but not Earned $230 a. Calculate GDP using the Expenditure Approach b. Calculate GDP using the Income Approach
Gross Domestic Product (GDP) refers to the goods and services produced domestically within the borders of the country during a given period of time. It indicates the economic growth and development of the economy and help strategize policy to maintain sustainable growth in economy.
GDP can be calculated using the expenditure method and income method approaches.
The GDP for the given question according to Expenditure Approach :
Where,
C is consumption expenditure in the economy
I is investment expenditure.
G is government expenditure
NX is the net exports , which is the difference between the export and the import of the economy.
In the example
C = Consumption = $1000
I = Gross private investment = $400
G = Government purchases = $480
NX = Export - Import = 100-180 = -80
Substituting the values in the formula we get :
GDP = C+I+G+NX
= 1000+400+480+(-80)
= 1000 + 400 + 480 - 80
= $1800
Therefore, GDP using expenditure approach is $1800.
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