Question

2)Explain how the GDP equation differs and is similar to the Income approach.

Answer 1

GDP Equation = C + I + G + (X - M) as per expenditure approach

GDP Equation as per Income approach = Wages + Rent + Profit + Interest + Statistical Adjustment srelated to tax, dividend etc.

Expenditure approach measures GDP as sum of expenditures in an economy like on consumption, government, investment and net imports.

Whereas Income approach measures it as sum of income received by factor of services in an economy like, wages paid to labor, interest received on investment, profit received by entrepreneurs, and rent earned on property.

The result of both the equation is same. Expenditure is done from income received only.

SIMILARITY -

GDP IS SAME FROM BOTH METHODS

DIFFERENCE-

APPROACH OF CALCULATING IS DIFFERENT