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GDP calculations

GDP calculations. 2 approaches. Two approaches. The two acceptable approaches to calculating GDP are Expenditures approach C+I+G +(X-M) Income approach Wages+rents+Interest+Profits+taxes. Expenditures Approach. C+I+G+(X-M) Personal C onsumption Expenditures (C)

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GDP calculations

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  1. GDP calculations 2 approaches

  2. Two approaches • The two acceptable approaches to calculating GDP are • Expenditures approach • C+I+G +(X-M) • Income approach • Wages+rents+Interest+Profits+taxes

  3. Expenditures Approach • C+I+G+(X-M) • Personal Consumption Expenditures (C) • Covers all expenditures by households on goods and services (groceries, gasoline, DirectTV, appliances,healthcare) • Roughly divided into 3 categories • 10% on durable goods (lifespan of 3 or more years) • 30% on nondurable goods (less than 3 years) • 60% on services

  4. Expenditures Approach • Gross Private Domestic Investment (I) • Final purchases of capital by businesses • All construction (potential investment) • Changes in inventories (unconsumed output)

  5. Expenditures Approach • Government Purchases (G) • Includes all levels of government • Includes money spent on providing services and publicly owned capital (schools, roads) • Does not include transfer payments

  6. Expenditures Approach • Net Exports (Xn) • Exports – imports=net exports • Remember, we only want to count goods produced here in Gross Domestic Product

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