Question

Suppose for economy of Springfield, we have following info. for 2006: consumption expenditures = $4,000; wages = $3,500; gross private domestic investment = $1,300; government expenditures = $2,000; exports = $900; imports = $1,100. Using the expenditure approach what would the Gross Domestic Product (GDP) be for Springfield in 2008?

Answer 1

GDP2006= $3500

Step-by-step explanation:

The Expenditure Approach is a method of measuring GDP by calculating all spending throughout the economy including consumer consumption, investing, government spending, and net exports. This method calculates what a country produces, assuming that the finished goods and services of a country equals the amount spent in the country for that period.

The formula is:

GDP=C+I+G+/-NX

GDP: Gross Domestic Product

(C) consumer spending – this is the amount that all consumers spend on goods and services for personal use.

(I) investment – this is the amount that businesses or owners spend to invest in new equipment or expansions.

(G) government spending – this includes spending on new infrastructure like bridges and roads.

(NX) net exports – this includes spending on a country’s exports minus its spending on imports.

GDP2006= 4000+1300+2000+(900-1100)

GDP2006= 4000+1300+2000-200

GDP2006=3500

Notice that we didn't include Wages ($3.500,00). The expenditure income approach doesn't include Wages. Wages are part of the formula to calculate GDP by the Income Approach.