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Expenditure on China-made computers at Future shop by Canadian households
Expenditure on expanding a size of factory by Honda Canada Inc. in Alliston, Ontario 2 / 3 x x x SFU Econ 105 Week 5 Summer 2013 5. The list below provides some national figures for the Econ 105 economy in a given year.
Wage and salary
Wage received from the U.S. $
250 a. Using both expenditure and income approaches, calculate the value of GDP for this
economy. ( show all relevant categories in each approach)
Using the expenditure approach;
Ca = 2730
Ia = 1000 + 300 = 1300 (Net investment + depreciation)
Ga = 1700 – 500 = 1200 ( Gov’t purchases = gov’t expenditure – transfer payment)
NXa = 1000 – 1300 = - 300
GDP = 2730 + 1300 + 1200 – 300 = $4930
Using the income approach;
Factor income = wage + interest income + business profit =4000 + 200 + 330 = 4530
Non factor payment = indirect tax - subsidy + depreciation = 150 - 50 + 300 = 400
GDP = $4930
b. Explain using your own words why income side and expenditure side must be identical in
national income accounting. GDP from income side is the sum of factor incomes, indirect taxes ( net of subsides) and
depreciation, while GDP from expenditure side is the sum of actual consumption, actual
investment, actual gov’t purchase and actual net exports The value of aggregate output produced in a given period represents total incomes given
to economic agents in an economy. At the same time, expenditures on domestic output
represent the value of output produced in a given time period. 3 / 3 SFU Econ 105 Week 5 Summer 2013 c. The “government purchases” component of GDP does not include spending on transfer
payments such as Social Security. Thinking about the definition of GDP, explain why
transfer payments are excluded.
From the expenditure side, total value of output must be the same as total expenditures on
domestic output made by HHs, firms, government and foreigners. However, the transfer
payment is not an expenditure made on domestic output. it is just a transfer of income
earned from one to another through the income tax system. 4 / 3...
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This note was uploaded on 01/20/2014 for the course ECON 105 taught by Professor Hanafiahharvey during the Summer '08 term at Simon Fraser.
- Summer '08
- Macroeconomics, Assignments