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26 January, 08:31

Using the data below, calculate GDP. Show your work. Personal consumption expenditures $5,207 Interest 425 Corporate profits 735 Government spending 1,406 Depreciation 830 Rental income 146 Gross private domestic investment 1,116 Compensation of employees 4,426 Exports 870 Imports 965 Indirect business taxes 553 Proprietors' income 520 Personal taxes 886 Social Security taxes 432 Transfer payments 376

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  1. 26 January, 09:26
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    GDP = 7634

    Explanation:

    Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. It is an indicator to measure the economic health of a country.

    The formula to calculate GDP is of three types - Expenditure Approach, Income Approach, and Production Approach.

    The Expenditure Approach is a method of measuring GDP by calculating all spending throughout the economy including consumer consumption, investing, government spending, and net exports. This method calculates what a country produces, assuming that the finished goods and services of a country equals the amount spent in the country for that period.

    The formula is:

    GDP=C+I+G+/-NX

    GDP: Gross Domestic Product

    (C) consumer spending - this is the amount that all consumers spend on goods and services for personal use.

    (I) investment - this is the amount that businesses or owners spend to invest in new equipment or expansions.

    (G) government spending - this includes spending on new infrastructure like bridges and roads.

    (NX) net exports - this includes spending on a country's exports minus its spending on imports.

    Personal consumption expenditures $5,207

    Government spending 1,406

    Gross private domestic investment 1,116

    Exports 870

    Imports 965

    GDP = 5207+1406+1116 + (870-965)

    GDP = 7634

    Notice that we didn't include Wages, Corporate Profits, Depreciation, etc. The expenditure income approach doesn't include Wages. They are part of the formula to calculate GDP by the Income Approach.
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