Question

10. Comparing the expenditure and value-added approaches for calculatingGDP

The expenditure and value-added approaches to calculating GDP arrive at the same final number, but they reach that number in different ways. To illustrate, consider the possible effects of the following set of transactions on GDP:

1.	Raphael pays Better Buy $800 for a new high-definition television (HDTV) and its installation. He's attracted by Better Buy's guarantee that he'll be happy with the new HDTV or get his money back.
2.	Better Buy pays Firedog $650 to install the HDTV.
3.	Firedog buys hardware worth $50 from The Home Station.

Compute the contribution to GDP of this set of transactions, using the expenditure approach, i.e., by assuming expenditures of buyers of final goods and services. Assume that The Home Station receives the hardware at no charge and that other costs are zero.

Which of the following would be included in the expenditure method of calculating GDP? Check all that apply.

Better Buy spends $650.

Raphael spends $800.

Firedog spends $50.

The total contribution of these transactions to GDP, as measured by the expenditure approach, is   .(1500,50,800,1450,150,600,650)

Now use the following table to compute the contribution of these transactions to GDP by summing the values added at each stage of production.

Stage of Production	Sale Value	Cost of Intermediate Goods	Resource Cost-Income
The Home Station	$50	—
Firedog	$650
Better Buy	$800

The contribution to GDP that you found using the expenditure approach corresponds to the sum of the ....... at each stage of production. (cost of intermedite goods, value added, sale value)

Answer 1

A........Answer.....Raphael spends $800 will be included in the expenditure method of calculating the GDP.

explanation: Raphael is the end user of HDTV ,he is not going to resell the good, his expenditure is final good not on intermediate good. In expenditure method of GDP calculations on expenditure on final good is included.

B...The total contribution of these transactions to GDP is $800 i.e. expenditure on final good by Raphael . Other expenditures are intermediate expenditures

C... stage of production sale value intermediate costs resource cost income(value added)

The H S 50 0 50

The fire dog 650 50 600

Better Buy 800 650 150

  

   Total contributions of three stages ofproduction= 50 + 600+150 =800

value added = sales —intermediate costs (purchase of raw materials)

D...............$800