Compare and contrast the two approaches of GDP computation mentioned in the text
ID: 1193426 • Letter: C
Question
Compare and contrast the two approaches of GDP computation mentioned in the textbook. Explain which
approach you think is more reliable and gives more accurate estimates of GDP. Provide two examples—one
of the U.S. and a second of another nation—to support your viewpoint.
To compare and contrast the two approaches of GDP computation, focus on the following questions:
What are the components of each approach?
What are the major economic activities that each approach covers?
What are the computation methods of each approach?
What are the assumptions each approach make?
Explanation / Answer
The Two Approaches of calculating the GDP are Expenditure Approach and Income Approach.
1- Expenditure Approach:
In Expenditure approach the economy is divided into four parts: Business, Household, Government and Foreign Sector.
The Formula to calculate the GDP in Expenditure Approach are following:
GDP = C + G+ I + Xn
Where GDP = Gross Domestic Product
C = Consumption is the total expenditures done by the household. This includes by the total expenditure for
last one year.
G = This includes the total expenditures done by the government such as public sector, healthcare and
other government expenses.
I = Investment done by the business entreprises.
Xn = It is the difference of net export and import. (Xn = Export - Import)
2- Income Approaches:
In Income Approach all the goods and services produced by the coutry in included.
GDP = Salary of the employees + Interest + Corporate Profit + Rent + Net Foreign Income + Taxes + Depreciation.
Income approaches is more accurate to calculate the GDP in comparison to Expenditures Approach. The Expenditures is not suitable beacause poepl and government can do te expenditure by borrow money. Borrow money are debt.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.