Chapter 16. Question 16

Correct! The expenditures approach includes all spending on final goods and services. The four major categories of spending are personal consumption expenditures, gross private domestic investment, government purchases, and net exports (exports minus imports). Expenditure Approach: GDP = C + I + G + (X - M).
Spending that contributes to GDP provides income to one of the economy’s various inputs or factors of production. This includes compensation of employees, proprietors’ income, corporate profits, rental income, and net interest, along with some statistical adjustments.
For further review, see sections “The Expenditures Approach to Calculating GDP” and “The Income Approach to Calculating GDP.” (please link to section in the ebook.)

Incorrect! The expenditures approach includes all spending on final goods and services. The four major categories of spending are personal consumption expenditures, gross private domestic investment, government purchases, and net exports (exports minus imports). Expenditure Approach: GDP = C + I + G + (X - M).
Spending that contributes to GDP provides income to one of the economy’s various inputs or factors of production. This includes compensation of employees, proprietors’ income, corporate profits, rental income, and net interest, along with some statistical adjustments.
For further review, see sections “The Expenditures Approach to Calculating GDP” and “The Income Approach to Calculating GDP.” (please link to section in the ebook.)

Correct! GDP using the expenditures approach is consumption (3,100 + 4,300 + 1,300) + gross private domestic investment (2,800) + government spending (2,100) + exports (1,400) – imports (1,900) = 13,100 million U.S. dollars (or $1.3 billion). GDP using the income approach is compensation of employees (8,000) + proprietors’ income (1,000) + corporate profits (1,300) + rental income (400) + net interest (500) + miscellaneous adjustments (700) + consumption of fixed capital (1,400) = 13,300 million U.S. dollars (or $13.3 billion). The difference between the expenditures approach and the income approach is due to a statistical discrepancy of -$200 million in the income approach. For further review, see sections “The Expenditures Approach to Calculating GDP” and “The Income Approach to Calculating GDP.” (please link to section in the ebook)

Incorrect! GDP using the expenditures approach is consumption (3,100 + 4,300 + 1,300) + gross private domestic investment (2,800) + government spending (2,100) + exports (1,400) – imports (1,900) = 13,100 million U.S. dollars (or $1.3 billion). GDP using the income approach is compensation of employees (8,000) + proprietors’ income (1,000) + corporate profits (1,300) + rental income (400) + net interest (500) + miscellaneous adjustments (700) + consumption of fixed capital (1,400) = 13,300 million U.S. dollars (or $13.3 billion). The difference between the expenditures approach and the income approach is due to a statistical discrepancy of -$200 million in the income approach. For further review, see sections “The Expenditures Approach to Calculating GDP” and “The Income Approach to Calculating GDP.” (please link to section in the ebook)

Correct! Consumption of fixed capital and statistical discrepancy are used to calculate GDP, but are not included in national income. Removing these, national income equals $11,900 million. For further review, see sections “The Expenditures Approach to Calculating GDP” and “The Income Approach to Calculating GDP.” (please link to section in the ebook).

Incorrect! Consumption of fixed capital and statistical discrepancy are used to calculate GDP, but are not included in national income. Removing these, national income equals $11,900 million. For further review, see sections “The Expenditures Approach to Calculating GDP” and “The Income Approach to Calculating GDP.” (please link to section in the ebook).