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ECMA06_Tutorial_2_Solution

# ECMA06_Tutorial_2_Solution - ECMA06 Tutorial#2 Answer Key...

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ECMA06 Tutorial #2 Answer Key Question 1 Part (a) Expenditure Approach: The expenditure approach: GDP = C + I + G + X – IM GDP = \$619.6B + (\$214.0B + (– \$1.0B)) + \$198.4B + \$496.2B – \$427.1B GDP = \$1100.1B Note: I = Fixed capital formation + Change in inventories. We do not include capital consumption allowances (CCA) because it is already included in fixed capital formation. Factor Income Approach: The factor income approach: GDP = wages + interest + profits + income of unincorporated business (farm + non-farm + government) + CCA + indirect taxes minus subsidies + IVA. GDP = \$557.1B + \$58.5B + \$133.8B + (\$64.7B + \$2.9B + \$10.8B) + \$141.2B + \$132.0B + (– \$1.3B) GDP = \$1099.7B Part (b) Typically, the expenditure approach and the factor income approach will not give the same answer due to statistical discrepancy. Since both approaches must give us the same GDP number, we divide the difference in two and add half to the low side and subtract half from the high side. In our example, the difference is \$0.4B. We will subtract \$0.2B from the GDP calculated using the expenditure approach and add \$0.2B to the GDP calculated using the factor income approach.

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