a) Why is GDP referred to as both the total output and the total income of the e

Question

a) Why is GDP referred to as both the total output and the total income of the economy?

b) Why do we distinguish between Nominal GDP and Real GDP? Which is more important in terms of satisfying human wants? Why?

c) Use what you need from the list below to compute GDP from the Expenditures approach.

Personal Consumption expenditures.............$425

Transfer payments.........................................$15

Consumption of fixed capital...........................$31

Interest............................................................$11

Exports............................................................$12

Government purchases...................................$85

Compensation of employees...........................$225

Imports............................................................$16

Net private domestic investment......................$37

Explanation / Answer

a) BECAUSE GDP is measusred at the market value of total goods and services produced in a country that means the expenses of one will be income of others, thus output of one person will be consumption of other in return for his income.

b)

Because real GDP adjusted the inflation which is the trur measure of the growth in the economy.Real GDP is more important as it only reflects the output growth increase, that means higher the production and higher the income in real sense.

c)

GDP from the Expenditures approach.=consumption+investment+government purchases+exports - imports

=425+37+85+12-16=543

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