Question

In a simple economy suppose that all income is either compensation of employees or profits. Suppose also that there are no indirect taxes. All data are in billion dollars:Category ValueConsumption 4,500Gross Investment 1,200Depreciation 655Profits 655Exports 500Compensation of Employees 5240Government Purchases 900Direct Taxes 750Saving 546Imports 550

Find GDP using the

(a) expenditure

(b) income approach.

Answer 1

To calculate GDP, the expenditure approach involves summing consumption, gross investment, government purchases, and net exports (exports minus imports), resulting in 7,500 billion dollars. The income approach involves summing compensation of employees, profits, and depreciation, resulting in 6,550 billion dollars, although it seems that some data may be missing as both approaches should equate.

Step-by-step explanation:

To calculate the Gross Domestic Product (GDP) using the given data, we can use both the expenditure approach and the income approach. The GDP formula for the expenditure approach is:

• GDP = Consumption + Gross Investment + Government Purchases + (Exports - Imports)

For the income approach, the formula is:

• GDP = Compensation of Employees + Profits + Depreciation (as Net Investment is included in Gross Investment)

Using the provided data:

1. Expenditure approach:
2. GDP = 4,500 (Consumption) + 1,200 (Gross Investment) + 900 (Government Purchases) + (500 (Exports) - 550 (Imports))
3. GDP = 4,500 + 1,200 + 900 + (500 - 550)
4. GDP = 7,550 - 50
5. GDP = 7,500 billion dollars

1. Income approach:
2. GDP = 5,240 (Compensation of Employees) + 655 (Profits) + 655 (Depreciation)
3. GDP = 5,240 + 655 + 655
4. GDP = 6,550 billion dollars
5. However, we notice that the income approach GDP does not take into account net exports, which could indicate that we might be missing some information such as indirect taxes or net income from abroad. Typically, GDP by income approach also includes these figures to equal the expenditure approach.

Answer 2

Step-by-step explanation:

Giving the following information:

Consumption 4,500

Gross Investment 1,200

Depreciation 655

Profits 655

Exports 500

Compensation of Employees 5240

Government Purchases 900

Direct Taxes 750

Saving 546

Imports 550

A) GDP=C+I+G+/-NX

GDP= 4,500 + 1,200 + 900 + 500 - 550= 6,550

B) GDP Formula = Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income

GDP= 655 + 750 + 655 + 5,240= 7,300

Total national income = Sum of rent, salaries, profit.

Sales Taxes = Tax imposed by a government on sales of goods and services.

Depreciation = the decrease in the value of an asset.

Net Foreign Factor Income = Income earn by a foreign factor like the amount of foreign company or foreign person earn from the country and it is also the difference between a country citizen and country earn.