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) : panasonic builds TV and sells it for $500. It means as in output method ,It' newly created tv value is $500.In expenditure method ,it is an Investment for Panasonic firm. In income method $200 is the income of labour + Profit to the firm $300.So total $500 income.So Here three of the methods are balanced.

(b) :Purchase of $250000 house is personal investment in expenditure method and also it was an output worth $250000.Income here split into imputed rent $1000 per month,profit..etc.which will balance the budget ultimately.

(c) :This $1500 won't turn up in gdp accounts. Because it was only reselled this year,but actually accounted it in previous year ,when the firm purchased it first."only final goods and services produced in a year is added".

(d)Here natural resource $10000 is an Intermediate good.So not accounted in gdp. Only final goods are accounted.

So $20000 worth laptops produced with the natural resources will be accounted.So output method $20000 is produced.In expenditure method ,half is sold to wells fargo and half to personal use.Thus in expenditure method, Wells fargos investment and personal consumption add up to $20000.In income method , total employee pay is $10000 (5000+5000). Rest of the income will be in the form of rent,profit ..etc ,which add upto $20000