Student
Tutor
Course
Date
 

  1. Using the Expenditure Approach, Calculate GDP Given in the Following Table
  Billions of $ Dollars
Personal Consumption Expenditure (C) 10,089.1
Durable Goods 1,035.0
Nondurable Goods 2,220.2
Services 6,833.9
Gross Private Domestic Investment (I) 1,628.8
Non-residential 1,388.8
Residential 361.0
Change in Business  Inventories -120.9
Government Expenditure (tt) 2,930.7
Federal 1,144.8
State and Local 1,786.9
Net Exports (X M ) -392.4
Exports 1,564.2
Imports 1,956.6

 
Solution
Expenditure Approach: GDP= C+I+G+NX
C= Consumption
I= Investments
G= Government expenditure
NX= Net exports (NX= Exports – Imports)
GDP= 10,089.1+ 1,628.8+ 2,930.7-392.4
GDP= 14,256.2

  1. Using the Data Below, Calculate the GDP Using the Income Approach and Identify Which Items on the List Superfluous in Your Calculation.
  Billions of Dollars
Compensation to Employees 4,500
Proprietors’ Income 500
Corporate Profits 800
Net Interest 400
Rental Income 100
Depreciation 900
Consumption 5,500
Government  Spending 1,400
Indirect Taxes minus Subsidies 500
Net Factor Payments to the Rest of the World 50

 
Solution
GDP= National Income (NY) + Indirect Business Taxes (IBT) + Capital Consumption Allowance and Depreciation (CCA) + Net Factor Payments to the rest of the world (NFP)
In the above case, consumption and government spending are excluded when calculating GDP when using income approach method.
Therefore,
GDP= 4500+ 500+ 800+ 400+ 100+ 900+ 500+ 50
GDP= $7,750 billion

  1. How are Transfer Payments Reconciled in the National income and Personal Income Accounts? Explain Your Reasoning.

Basically, transfer payments are reconciled in the personal income accounts but excluded in the national income. The underlying reason for this accounting procedure is that national income represents all the earned but not received incomes by members of a specific country. On the contrary, personal income accounts for both the earned and received income.

  1. Using the Table Below, Calculate the Nominal GDP for 1987 and Calculate Real GDP for 1988 Using 1987 as the Base Year.

 

  Output 1987 Output 1988 Price 1987 Price 1988
Bread 6 5 1.00 0.50
Paper Clips 10 12 0.50 1.00
Wine 2 3 5.00 5.00

Solution
Nominal GDP for 1987
Price (1987) * Quantity (1987) = Value
GDP= Bread (6*1) + Paper Clips (10*0.5) + Wine (2*5)
Nominal GDP= $21
Real GDP for 1988 using 1987 as the base year
Real GDP= Price (1987)*Quantity (1988)
Real GDP= Bread (5*1) + Paper Clips (12*0.5) + Wine (3*5)
Real GDP= $26