Show that the expenditure approach and the income approach add up to the same figure:
consumption $5000
investment $1000
depreciation $600
Profits $900
Exports $500
Compensation of Employees $5,300
Government purchases $1000
Direct Taxes $800
Saving $1100
Imports $700
How do we know that calculating GDP by the expenditure approach yields the same answer as calculating GDP by the income approach?
No idea.
Please help me to solve it.
To determine if the expenditure approach and the income approach yield the same GDP figure, we need to calculate GDP using both methods and compare the results.
1. Expenditure Approach:
GDP = Consumption + Investment + Government Purchases + (Exports - Imports)
GDP = $5000 + $1000 + $1000 + ($500 - $700)
GDP = $5000 + $1000 + $1000 - $200
GDP = $7100
2. Income Approach:
GDP = Compensation of Employees + Profits + Depreciation + (Taxes on Production and Imports - Subsidies) + Statistical discrepancies
GDP = $5300 + $900 + $600 + ($800 - $0) + 0
GDP = $5300 + $900 + $600 + $800
GDP = $7600
By comparing the figures obtained from the two approaches, we can see that they are different ($7100 vs. $7600). This indicates that there may be a discrepancy in the data provided or an error in the calculations.
Therefore, the expenditure approach and the income approach do not add up to the same figure in this case.