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 + nonfarm + 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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 Spring '10
 Dr.AtaMazaheri
 Macroeconomics, gross domestic product, Capital accumulation, National accounts, $400, $600

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