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GDP components

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

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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