30 September, 03:29

# 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?

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1. 30 September, 06:34
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GDP2006 = \$3500

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.