Scribd Logo
Upload

Welcome to Scribd!

  • 47 views

    A) Explain Three Different Approaches To Calculate The GDP. Which Approach Should Be

    Uploaded by

    Haris Khan
    The document discusses three approaches to calculating GDP - the expenditure method, income method, and gross value added method. It then provides an example calculation of real GDP, nominal GDP, and GDP deflator for an economy that produces tomatoes and ketchup in 2014 and 2015 using the expenditure method. For an economy like Pakistan, the expenditure method should be used because it is based on data that is more easily available, such as household and government spending.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    A) Explain Three Different Approaches To Calculate The GDP. Which Approach Should Be

    Uploaded by

    Haris Khan
    47 views2 pages
    The document discusses three approaches to calculating GDP - the expenditure method, income method, and gross value added method. It then provides an example calculation of real GDP, nominal GDP, and GDP deflator for an economy that produces tomatoes and ketchup in 2014 and 2015 using the expenditure method. For an economy like Pakistan, the expenditure method should be used because it is based on data that is more easily available, such as household and government spending.

    Original Description:

    Macro Economics question in this document.

    Original Title

    Macro Q1

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses three approaches to calculating GDP - the expenditure method, income method, and gross value added method. It then provides an example calculation of real GDP, nominal GDP, and GDP deflator for an economy that produces tomatoes and ketchup in 2014 and 2015 using the expenditure method. For an economy like Pakistan, the expenditure method should be used because it is based on data that is more easily available, such as household and government spending.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    47 views2 pages

    A) Explain Three Different Approaches To Calculate The GDP. Which Approach Should Be

    Uploaded by

    Haris Khan
    The document discusses three approaches to calculating GDP - the expenditure method, income method, and gross value added method. It then provides an example calculation of real GDP, nominal GDP, and GDP deflator for an economy that produces tomatoes and ketchup in 2014 and 2015 using the expenditure method. For an economy like Pakistan, the expenditure method should be used because it is based on data that is more easily available, such as household and government spending.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 2

    Question

    a)   Explain three different approaches to calculate the GDP. Which approach should be
    used in the economy like Pakistan and Why?

    b)  An economy produces two goods: tomatoes and ketchup. It is assumed that half of the
    tomatoes are bought and consumed as final good; the other half is used to produce
    ketchup.

    In 2014, 30 KGs of tomatoes are produced at Rs.60 each, and 20 KGs of ketchup are
    produced at Rs.200 each.
    In 2015, 40 KGs of tomatoes are produced at Rs.80 each, and 30 KGs of ketchup are
    produced at Rs.195 each.

    Find the following:


    Assuming 2014 is the base year; calculate the real, nominal GDP and GDP deflator in 2014
    and 2015.

    Gross domestic product (GDP) is the total value of output produced in a given time period.
    There are 3 ways to measure GDP -
    1) The Expenditure method - Expenditure method is calculated by adding household
    spending on goods and services,capital investment ,government spending ,exports of
    goods and services and by deducting imports of goods and services.hence expenditure
    method measure what amount is spend on goods and services.

    2) Income method - This is the sum of all income earned through production of goods and
    services.income method includes income from people by way of jobs and self employment
    like wages and salaries,profit,rent income.
    Hence this included all incomes that are come from production of goods and services but
    excludes all transfer payments,private transfers of money,income not registered with tax
    authorities.

    3) Gross value added or output approach - this is the increase in the value of goods or
    services as a result of production activity. Value added is calculated by deducting of value
    of intermediate goods from value of production.

    It is given that we have to use year 2014 as the base year.


    Therefore, the Real GDP of this fictional economy for 2015 is calculated as follows:
    = (Current quantity of tomatoes * Price of tomatoes in base year) + (Current quantity of
    ketchup * Price of ketchup in base year)
    = (40 * $60) + (30 * $200)
    = $2400 + $6000
    = $8400

    Nominal GDP = (Current quantity of tomatoes * Current price of tomatoes) + (Current


    quantity of ketchup * Current Price of ketchup)
    = (40 * $80) + (30 * $195)
    = $3200 + $5850
    = $9050

    GDP Deflator = Nominal GDP/Real GDP * 100


    = (9050/8400) *100
    = 1.07 %

    Question.

    Which approach should be used in the economy like Pakistan and why?

    Answer.

    In the economy like Pakistan, which is a developing economy expenditure method is most
    useful because data is easily available in this method. It says everything that the private
    sector, including consumers and private firms, and government spend within the borders of
    a particular country, must add up to the total value of all finished goods and services
    produced over a certain period of time.

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy