LAST AND FINAL PAPER

2

sCalculating GDP

(Table 1) National Income Acounting 1st year data
Consumption of durational goods	1250000
Consumption of non-durable goods	889000
Compensation of employees	865000
Consumption of service	2350000
Fixed residential investments	645000
Corporate profits	1150000
Fixed nonresidential investments	730000
Consumption of fixed capital	90400
Change of inventories	125000
Government purchase of goods and services	940000
Exports	250000
Imports	360000

(Table 2) National Income Acounting 2nd year data
Consumption of durational goods	1437500
Consumption of non-durable goods	1022350
Compensation of employees	994750
Consumption of service	2702500
Fixed residential investments	748200
Corporate profits	1322500
Fixed nonresidential investments	854100
Consumption of fixed capital	103960
Change of inventories	143750
Government purchase of goods and services	977600
Exports	262000
Imports	378000

Q1. Calculating GDP Using the Expenditure Approach

Year 1:

(a) Personal Consumption Expenditure (C):

Consumption of durable goods + Consumption of non-durable goods + Consumption of services

C=1250000+889000+2350000= 4489000

(b) Gross Private Domestic Investment (Ig):

Fixed residential investments + Fixed nonresidential investments + Change of inventories

Ig=645000+730000+125000= 1505000

(c). Government Purchase of Goods and Services (G):

G=940000

Net Exports (X - M):

Exports - Imports

X - M = 250000 - 360000 = -110000 (since imports exceed exports)

GDP:

Using the expenditure approach: GDP=C+ Ig +G+(X−M)

GDP= 4489000+1505000+940000−110000=6846000

Year 2:

Personal Consumption Expenditure (C):

C=1437500+1022350+2702500=5162350

Gross Private Domestic Investment (Ig):

Ig=748200+854100+143750=1748050

Government Purchase of Goods and Services (G):

G=977600G = 977600G= 977600

Net Exports (X - M):

X−M=262000−378000= −116000

GDP:

GDP=decimal+(X−M) GDP = C + Ig + G + (X - M) GDP=decimal+(X−M)

GDP=5162350+1748050+977600−116000=7624000

Q2. Percentage Change in Expenditure Categories

To find out which category experienced the highest percentage change from year 1 to year 2:

Personal Consumption Expenditure (C):

Percentage Change=5162350−4489000 /4489000×100≈15.01%

Gross Private Domestic Investment (Ig):

Percentage Change=1748050−1505000/1505000×100≈16.14%

Government Purchase of Goods and Services (G):

Percentage Change=977600−940000940000×100≈4.00%

Net Exports (X - M):

Percentage Change=−116000−(−110000) /−110000×100≈−5.45%

The category with the highest percentage change from year 1 to year 2 is Gross Private Domestic Investment (Ig) with an increase of approximately 16.14%.

Q3. Percentage Change in GDP

To calculate the percentage change in GDP:

Percentage Change in GDP=7624000−68460006846000×100≈11.38%

Q4. Importance of GDP and GDP per Capita

Importance of GDP: GDP is important since it represents the summary measure of the national economic activities and performance over time. GDP gives the gross value of goods and services produced within the borders of any country; thus, it indicates the general health and growth of an economy. Policymakers, business people, and investors look toward GDP to determine the trends of the economy, by which they make informed decisions and policy formation for development.

GDP per Capita: GDP per capita is calculated by dividing the country's GDP by the population. It is an average measure of the amount of goods and services produced per person in an economy and helps compare the standard of living and economic welfare of different countries. It measures how much a person can potentially consume or invest from the country's total economic output. A country with a high GDP per head is more likely to have good infrastructure, high levels of income, and more resources available for public services and development.

GDP and GDP per capita describe important measures that give evidence of a relationship between the economic performance of countries and living standards and therefore shape policy implications and investment decisions across the globe.