Chapter 16. Question 16

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Question 16
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You must read each slide, and complete any questions on the slide, in sequence.

Use the following list of GDP components and data (given in millions of $U.S.) to answer the following questions.

Question

A. Indicate whether each component is part of the expenditures approach to calculating GDP (put an “E” next to the component) or the income approach to calculating GDP (put an “I” next to the component).
Corporate profits 1,300 Vkg6Ff19M08=
Gross private domestic investment 2,800 6eH6z9Q7GCA=
Consumption of nondurable goods 3,100 6eH6z9Q7GCA=
Exports 1,400 6eH6z9Q7GCA=
Proprietors' income 1,000 Vkg6Ff19M08=
Miscellaneous adjustments 700 Vkg6Ff19M08=
Consumption of services 4,300 6eH6z9Q7GCA=
Net interest 500 Vkg6Ff19M08=
Compensation of employees 8,000 Vkg6Ff19M08=
Imports 1,900 6eH6z9Q7GCA=
Rental income 400 Vkg6Ff19M08=
Government spending 2,100 6eH6z9Q7GCA=
Consumption of durable goods 1,300 6eH6z9Q7GCA=
Consumption of fixed capital 1,400 Vkg6Ff19M08=
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.)

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Question

B. Compute the GDP using both expenditures and income approach. What factor explains the difference between these measures?
Corporate profits 1,300
Gross private domestic investment 2,800
Consumption of nondurable goods 3,100
Exports 1,400
Proprietors' income 1,000
Miscellaneous adjustments 700
Consumption of services 4,300
Net interest 500
Compensation of employees 8,000
Imports 1,900
Rental income 400
Government spending 2,100
Consumption of durable goods 1,300
Consumption of fixed capital 1,400

GDP using the expenditure approach is $iryREOu7HO38ua02 million, and it is $KVhIOCBAj9WrKtfx million using the income approach. The difference is due to QYJaC6DfMWZle9bMcRYDnEt+Kmd06IArMkLAtw==

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)

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Question

C. Calculate the value of national income. Which category (categories) is (are) not included in national income, but are included in the calculation of GDP using the income approach?
Corporate profits 1,300
Gross private domestic investment 2,800
Consumption of nondurable goods 3,100
Exports 1,400
Proprietors' income 1,000
Miscellaneous adjustments 700
Consumption of services 4,300
Net interest 500
Compensation of employees 8,000
Imports 1,900
Rental income 400
Government spending 2,100
Consumption of durable goods 1,300
Consumption of fixed capital 1,400

National income equals $rn5Ndj2L3b4daXi1 million. The category (categories) of LkYO8BL3NzJwY9vi3NJqgUWVaaa8dSFX8Y3UOe90kfPRjjvfJMcI73CK4QSha8/mHlM4vX6xkFdT4sQc is (are) not included in the calculation of national income.

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).