Assume an economy wth a car snufacturer, a car seler, and some consumers (there

Question

Assume an economy wth a car snufacturer, a car seler, and some consumers (there is no government). The consumers are workers who ear a wage to finance their consumption. In a given year, the car manufacturer produces 50,000 cars and sells them for 810,000 per car. The workers' wages take up 70% of the car manufacturer's revenue. All the materials used for producing cars are imported from other countries at a cost of 81,000 per car. Half of the manufactured cars are exported overses and the remaining cars are sold to the domestic car seller. The car seller sells the domestie cars and imported cars at the same price of $14,000 per car. The car seller sells all of the domestie cars and 5, 000 of the imported cars to domestic consumers. After paying 86, 000 for the cost of an imported car, the remaining sales revenue is equally distributed between wages and profits. (s) Caleulate GDP using i. the product approsch, The expenditure approach, and ii. the income spproach. (b) Suppose that the car manufacturer is a foreign entity and all its profits belong to for- eigners, what would GNP and CDPin this economy be in thiscase?

Explanation / Answer

Generally, GDP refers to a monetary measure of the market value of all the final goods and services produced over a period of time, often annually or quarterly.

2. Income Approach includes the following:-

3. The Expenditure approach

This suggests to simply look at how much do households, government, non-profit institutions, and financial institutions consume within a country to which one must add the net exports of that country.

If you are interested to know more about GDP and its calculations, detailed concepts are written in these books of Economics published by Palgrave Macmillan. I have personally bought books from Palgrave and found them very informative with regard to the subject of Economics.

There are 4 categories of Expenditure

The formula for calculating GDP, using the expenditure approach is the following:

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

The expenditure approach not only facilitates the compilation of GDP, but it can also offer insights on the economic policies of a country, like in the graph below (source: OECD)

NOTE: GDP is only concerned with NEW and FINAL Production. It excludes:

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