Question

How does GDP accounting record the following events? For each of them, describe how they would be computed in GDP accounts using the income method, the production method and the expenditure method (typing the answer)

(a) Panasonic builds a TV which it sells domestically for $500. Panasonic’s only costs were labor costs of $200.

b) You purchase a brand new house for $250,000 and live in it for three month,the rental rate to live in a similar house is $1,000 a month. For simplicity assume the house was produced at zero cost by a corporation.

(c) Walmart sells 1000 bottles of Coca-Cola for $1,500. It had purchased them last year and paid $1,200 for them.

(d) Mining Inc. mines $10,000 worth of natural resources which it sells to Pear Inc. Pear Inc. uses the natural materials to produce $20,000 worth of laptops.Pear Inc. sells half the laptops to Wells Fargo to be used in their offices and the other half to individuals for personal use. Mining Inc. pays its employees$5,000. Pear Inc. pays its employees $5,000.

Answer 1

a) In the following, the price of the final good which is the TV and the cost of labor is taken as the main components. Hence the total value of the Tv set produced minus the price of the input that is the labor cost which has gone to produce the output is taken under calculation through production method, the expenditure method will be the amount of money spent on the input while the income method will include the total sales or the revenue reciepts.

b) The calculation will be according to the depreciating value of the house. In terms of income method, the rent that is recieved by the owner will be included in the particular method.

c) The total income that will be recievd by Wallmart is the total sales reciept. This will be the amount of sold bottles multiplied by the the price of each bottle sold. The expenditure will be the total cost that the company incurred inorder to buy those bottles.

d) The production cost will be each new value added to the mined natural resources. The income will be the total amount paid to the company by the seller. The expenditure is the income and salaries paid to the employees.