GDP calculation A Imagine an economy with only one business, called ABC Potate.
ID: 1101766 • Letter: G
Question
GDP calculation A Imagine an economy with only one business, called ABC Potate. The following table shows the transactions of ABC Potate. Show how to calculate the GDP in this economy using the three approaches. You don't need to calculate it actually: if you think the GDP is calculated as $200,000- $10,000+ $500,000, just write down " $200,000- $10,000+ $500,000." Your answer will look like the following. Note that the numbers appear in your answer must be one of the numbers in the table. For example, $200,000 - $10,000 is equal to $190,000, but you cannot write down $190,000. You should write $200,000 - $10,000. Imagine an economy with only two business, called ABC Potate and XYZ Chips. The following table shows the transactions of them. Show how to calculate the GDP in this economy using the three approaches, in the same way as in A.Explanation / Answer
1. Expenditures Approach: $500,000
GDP is calculated as the total spending on all final goods and services
2. Income approach: ($500,000 - $20,000-$10,000) + $20,000 + $10,000
Using the Income Approach GDP is calculated by adding up the factor incomes to the factors of production in the society.
3. Value added Approach: $500,000
The value of sales of goods - purchase of intermediate goods to produce the goods sold.
B.)
Expenditures Approach: $400,000 + $300,000 = $700,000
Income Approach =
200,000 + 10,000 + (500,000 - 200,000 - 10,000) + 150,000 + 2,000 + (300,000 - 100,000 - 150,000 -2,000)
= $200,000 + $10,000 + $290,000 + $150,000 + $2,000 + $48,000 = $700,000
For ABC potato
200,000 + 10,000 + (500,000 - 200,000 - 10,000) = 200,000 + 10,000 + 290,000 = $500,000
For XYZ chips
150,000 + 2,000 + (300,000 - 100,000 - 150,000 -2,000) = $200,000
Value Added Approach: $500,000 + ($300,000 - $100,000) = $500,000 + $200,000 = $700,000
Value added by XYZ chips = Value of chips sold - Value of potato brought from ABC
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