Calculation of GDP via the expenditure model
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Given the following annual information about a hypothetical country, answer questions a through d.
Personal consumption expenditures $200
Personal taxes $50
Exports $30
Depreciation $10
Government purchases $50
Gross private domestic investments $40
Imports $40
Government transfer payments $20
a. What is the value of GDP?
b. What is the value of net domestic product?
c. What is the value of net investment?
d. What is the value of net exports?
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Solution Summary
The expenditure model of GDP calculates its value by obtaining the aggregate of all net expenditures. Hence GDP is equal to the sum of the following expenditures: consumption, government purchases, net investment (gross investment less depreciation) and net exports (exports minus imports).
Solution Preview
a. The expenditure approach to calculating GDP is:
GDP = C + I + G + X - IM, where net I = gross I - ...
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