Answer to Question #320890 in Macroeconomics for Bla bla

Question

1. A small open economy is characterized by having the following information,

Indicator In million dollars

Transfer Payments 54

Interest Income 150

Depreciation 36

Wages 67

Gross Private Investment (I) 124

Business Profits 200

Indirect Business Taxes 74

Rental Income 75

Net Exports (X-M)

18

Net Foreign Factor Income 12

Government Purchases (G) 156

Household Consumption (C) 304

A. Calculate GDP using expenditure approach

B. Calculate GDP using Income approach

C. Is there any difference between the two approaches of calculating GDP? Why?

Answer 1

A) Expenditures approach

GDP= C+I+G+(X-M)

GDP=$304+$124+$156+$18

GDP=$602 million

B) Income approach

GDP=i+R+W+D+Tb+πu

i= Interest income

R= rental income

W= wages

D= depreciation

Tb= indirect business tax

πu= Business tax

GDP=$150+$75+$67+$36+$74+$200

GDP=$602 million

C)There are no differences between the two approaches. This is because the first approach is viewed from all the expenses that accrue to a country from spendings while the income factor approach views GDP from the factor incomes generated from production processes.