Calculating and Tracking GDP Expenditure A pproach Determining GDP by adding up all the spending on final goods and services Personal Consumption Expenditures C Gross Investment ID: 430217
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Slide1
The Income and Expenditure Approaches
Calculating and Tracking GDPSlide2
Expenditure Approach
Determining GDP by adding up all the spending on final goods and
services.
Personal
Consumption Expenditures
(
C
)
Gross
Investment
(
Ig
)
Government Purchases
(
G
)
Net Exports
(
Xn
)
Therefore,
GDP = (
C +
Ig
+ G +
Xn
)Slide3
Personal Consumption (C)
Covers
all expenditures by household
on
durable
consumer goods
(like automobiles and refrigerators),
nondurable
consumer goods (
like bread and toothpaste
), and
expenditures
for
services
(barbers etc.).Slide4
Gross Investment (
Ig
)
All final purchases
of machinery, equipment, and tools by
businesses.
All
construction
(includes
residential construction b/c they can earn income when
rented/leased
Changes
in inventories
(unsold goods) represent 'unconsumed output' so they are also
included. We add
positive or increased
inventory
& subtract negative or decreased
inventory.
Net
I
nvestment
=
Gross Investment
-
Depreciation
(amount of capital that is used
up).Slide5
Government Purchases
(G)
Expenditures
for goods and services that the government
makes providing
public services
.
Expenditures for
social capital
(i.e. schools and highways) which have long lifetimes.
Government transfer payments
not
included (
transferring money
doesn't contribute to current production)Slide6
Net Exports (
Xn
)
Net Exports
(
Xn
) = exports (X) – imports (M)
GDP includes spending on
Canadian
output by people
abroad,
but
we have to minus what we buy from them.Slide7
Remember This
An easy way to remember the factors that make up the expenditures approach is by using the
acroynom
PING:
P
ersonal consumption expenditures
I
nvestment
N
et Exports
G
overnment PurchasesSlide8
Domestic Income
Determined by adding up the income earned by Canadian-supplied resources.
Wages, Salaries, and Supplements.
Corporation Profits Before Taxes
Interest
& Miscellaneous Investment Income
Farmers’ Income
Rents and Unincorporated Business IncomeSlide9
The Income Approach to GDP
Arrived at by making the following adjustments to Domestic Income:
Net Domestic Income
+
(
Indirect Taxes + Depreciation/CCA
)
+/-
Statistical Discrepancy Slide10
Key Question # 8 (Page 149)
Assignment 2.2
Utilizing the data listed on page 149:
Determine
GDP
by both the
Expenditure
and
Income
Methods.
Hint: (215 = 215)
Determine
Net Domestic Income
Once you work with these questions a few times, they become relatively easy marks.