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PRINCIPLES OF ECONOMICS
Questions:
(1) To calculate the value of GDP from the expenditure method, you can use the following equation: GDP = C + In + G + Xn. Do you agree or disagree, and why?
(2) The table below shows national income accounting data. All figures in Billions
Compensation of employees
U.S. exports of goods and services
Consumption of fixed capital (depreciation)
Government purchases
Taxes on production and imports
Net private domestic investment
Govt. Transfer payments
U.S. imports of goods and services
Personal taxes
Net foreign factor income
Personal consumption expenditures
Statistical discrepancy
Rents $194.2
17.8
11.8
59.4
14.4
52.1
13.9
16.5
40.5
2.2
219.1
0
42.5
(a) Using the following national income accounting data, compute Gross Domestic Product value by expenditure method.
(b) Compute Net Domestic Product value by any method possible.
(c) Compute National Income by adjustment method.
Sample Answer
I agree that GDP can be calculated using the expenditure method. The equation GDP = C + I + G + Xn represents the four main components of aggregate demand in an economy:
- C: Consumption expenditure by households
- I: Investment spending by businesses
- G: Government spending on goods and services
- Xn: Net exports (exports – imports)
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