How does the income approach to measuring GDP differ from the expenditure approach? Explain the meaning of value-added and its importance in the income approach. Consider the following data for the selling price at each stage in the production of a 5-pound bag of flour sold by your local grocer. Calculate the final market value of the flour.
Stage of the Production Sale price
Farmer $0.30
Miller 0.50
Wholesaler 1.00
Grocer 1.50
How does the income approach to measuring GDP differ from the expenditure approach? Explain the meaning of value-added and its importance in the income approach. Consider the following data for the selling price at each stage in the production of a 5-pound bag of flour sold by your local grocer. Calculate the final market value of the flour.
Stage of the Production Sale price
Farmer $0.30
Miller 0.50
Wholesaler 1.00
Grocer 1.50
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The expenditure and resource cost-income approaches to calculating GDP arrive at the same final number, but they calculate that number in different ways. To illustrate, consider the possible effects of the following transactions on GDP:
| 1. | Ralph pays The Home Station $1,200 to plant a new lawn in his backyard. He's attracted by The Home Station's guarantee that he'll be happy with the new lawn, or he'll get his money back. | ||||||||||||||||
| 2. | The Home Station pays Al's Lawn Care $850 to plant the lawn. | ||||||||||||||||
| 3. | Al's Lawn Care buys grass seed worth $200 from Green Center Nursery. Compute contributions to GDP, using the expenditure approach. Assume that Green Center Nursery receives the grass seed at no charge and that other costs are zero. Hint: Add the amount of money spent by buyers of final goods and services. Which of the following would be included in the expenditure method of calculating GDP? Check all that apply. -The Home Station spends $850. -Ralph spends $1,200. -Al's Lawn Care spends $200. The total contribution to GDP, measured by the expenditure method, is $______ Now use the following table to compute contributions to GDP, employing the resource cost-income approach. In particular, indicate the costs of intermediate goods and the value-added at each stage of production.
The contribution to GDP that you found using the expenditure approach corresponds to the sum of the _____Β at each stage of production. |
