c22c-kl - 2. With the Expenditure approach, GDP is...

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22.c. Gross Domestic Product The official definition of Gross Domestic Product, or GDP, is: -a nation’s total income and total expenditure on its output of goods and services OR -the dollar value of final output produced during a given period of time within the borders of that country The main goal of measuring a country’s GDP is to summarize in a single number the dollar value of economic activity in a given time period. Generally, there are 3 ways to measure GDP. These are the product approach, the expenditure approach, and the income approach. 1. The Product approach is also called the value-added approach. This is because GDP is calculated as: the sum of value added to goods and services in production across all productive units in the economy. In other words, we take the sum of the values of all goods produced, and then subtract the values of all intermediate goods used in production.
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Unformatted text preview: 2. With the Expenditure approach, GDP is calculated as: total spending on all final goods and services production in the economy. In other words, it can be written as: Total Expenditure = C + I + G + NX Where C is consumption expenditure, I is investment expenditure, G is government expenditure, and NX is net exports. 3. With the Income approach, GDP is calculated as: the sum of all incomes received by economic agents contributing to production. These incomes include: profits made by firms, wages, salaries, benefits, rental income, corporate profits, net interest, indirect business taxes, and depreciation. All three approaches produce the same GDP total because the total quantity of output, or value added, in the economy is ultimately sold, thus becoming expenditure, and what is spent on all output produced ends up as income, in some kind of form, for someone else in the economy....
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This note was uploaded on 09/25/2008 for the course ECON 160 taught by Professor Baim during the Summer '98 term at UCLA.

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