For questions 25 consider the following list of data for a c

For questions 2-5, consider the following list of data for a country for a given year.

Amounts are in billions of dollars.

Your answers should be based on the U.S. national-accounts.

Hint: Before answering questions 2-3, read all questions 1-5.

Item

Amount

Compensation of Employees (CE)

63

Consumption (C)

55

Depreciation (DEP)

20

Government consumption and gross investment (G)

13

Gross private investment (I)

35

Interest (INT)

6

Net exports of goods and services (NX)

-3

Net income of foreigners (NIF)

-1

Nonmarket Production (NMP)

20

Profits (PR)

5

Proprietors’ Income (PI)

2

Purchases of stocks by households and firms (PBS)

55

Profits (PR)

5

Proprietors’ Income (PI)

2

Rent (R)

3

Sales Taxes (ST)

2

2. Compute GDP via the “expenditures” approach. Show your work. You may refer to the items via the abbreviations shown.

3. Compute GDP via the “resource-cost income” approach. Build up GDP by first computing national income; then incorporate other items. Show your work. You may refer to the items via the abbreviations shown.

4. Two items in the list are negative. How can these items be negative and yet be components of GDP? Could these items be positive and still be components of GDP? Explain carefully and thoroughly.

5. Two items in the list are not part of the answers to 2-3. Which are the items and why do they not enter the answers? Explain carefully and thoroughly.

Item	Amount
Compensation of Employees (CE)	63
Consumption (C)	55
Depreciation (DEP)	20
Government consumption and gross investment (G)	13
Gross private investment (I)	35
Interest (INT)	6
Net exports of goods and services (NX)	-3
Net income of foreigners (NIF)	-1
Nonmarket Production (NMP)	20
Profits (PR)	5
Proprietors’ Income (PI)	2
Purchases of stocks by households and firms (PBS)	55
Profits (PR)	5
Proprietors’ Income (PI)	2
Rent (R)	3
Sales Taxes (ST)	2

Solution

Answer:

            The Bureau of Economic Analysis (BEA), an agency of the Commerce Department, assesses the health of the economy by collecting statistics about the economy periodically and comparing levels of production with recent and historical measurements.

Gross domestic product (GDP) is the total market value of all final goods and services produced in a given year within the United States, whether produced by citizens, companies, or by foreigners in the United States. GDP can be measured by using either the expenditures approach, which sums the amount paid for final goods and services, or the income approach, which measures the income received for producing products and services.

Compute GDP via the “expenditures” approach:

            By using the data in above Table we can calculate the GDP using the expenditures approach. As you can see, the table contains more data than is necessary so you have to look for the parts which make up the expenditures approach to calculating GDP. The following formula may uses for measuring the GDP.

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

In this case the C is represented by Consumption which is $55.
The G refers to Government Spending which is $13.
I is gross private investment and is $35.
(X - M) is the net exports and in the table is shown to be $-3.
NIF is $-1
   Therefore:

            GDP = $55 + $13 + $35 + (- $3 x $-1)

            GDP = $86

Compute GDP via the “resource-cost income” approach:

In this case we use the formula:

            NI = R + i + PR +PBS+ST+PI

Rental income is the R and is $3.
Interest income is i and is $6
PR are business profits and are $5

PBS is $55

PI is $2

Therefore:

            NI = $3 + $6 + $5 + $55 + $2

            NI = $71

GDP = NI + Indirect Business Taxes + Depreciation

            = $71 + $2 + $20 = $93

            GDP = $93

         As you can see, in this case, both approaches to calculating GDP will not give the same estimate. This is not always what happens and sometimes GDP will not differ slightly when the different approaches are used.

Two items in the list are negative. How can these items be negative and yet be components of GDP?

            The two items are Net exports of goods and services -3 and Net income of foreigners -1. This is indicates the U.S. Economy’s exports are less than imports, as well as there is no income source from foreigners.

Two items in the list are not part of the answers in the above table. Which are the items do they not enter the answers?

            Those two items from the above table are: Compensation of Employees: $63 and Nonmarket production is: $20. We should not take in the calculation of GDP.