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    GDP components

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    1. Define List the components of GDP in the output (expenditures) approach and in the income approach, NDP, NI, PI, and DI.
    2. What is an investment schedule and how does it differ from an investment demand curve?
    3. What is Say's law? How does it relate to the view held by classical economists that the economy generally will operate at a position on its production possibilities curve. Use production possibilities to demonstrate Keynes's view on this matter

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    Solution Preview

    1. Define List the components of GDP in the output (expenditures) approach and in the income approach, NDP, NI, PI, and DI.

    To calculate GDP using the expenditure approach, we use the formula
    GDP = C + I + G + (EX - IM)
    where
    C = consumption
    I = investment spending
    G = government spending
    EX = exports
    IM = imports

    To calculate GDP using the income approach, we use the formula GDP = NI+ Indirect Business Taxes + Depreciation

    Where NI is national income and is found using NI = W + R + i + PR
    where
    W =wages
    R = Rental income
    i = Interest income
    PR = business profits

    National income (NI):
    GDP is different from national income because it includes indirect business taxes, the most important parts of which are sales and excise ...

    Solution Summary

    Components of GDP in the output (expenditures) approach and in the income approach; investment demand curve; Say's law; Keynesian theory

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