Question

a) Why did you select this example?

b) What are some of the concepts or ideas that the author is trying convey or teach with this example?

c) Which details or facts of the example are the most relevant and why?

d) What alternative policies or measures would you propose to solve the problem or challenge discussed?

case The Components of Canadian GDP Tables 5.1 and 5.2 both show the composition of Canadian GDP in 2014. Because there are two ways to calculate GDP Table 5.1 shows the composition of GDP by category of expenditure, while Table 5.2 shows the study composition of GDP by category of income. The annual GDP of Canada was $1973 billion in 2014. If we divide this number by the 2014 Canadian population of approximately 35.3 million, we find that GDP per person-the amount of expenditure for the average Canadian-was about $55 822 in that year From Table 5.1 we see that in 2014, consumption made up 56 percent of GDP, or S31 311 per person. Investment averaged $13 530 per person and government pur- chases averaged $11 496 per person. Net exports averaged $527 per person. This is a negative number because it is a measure of the difference between exports ($17 671 per person) and imports ($18 198 per person). Because in 2014 the value of imports exceeded the value of exports, net exports turned out to be a negative value. Note that although "net exports" is a relatively small amount, it reflects the difference between two very large amounts. International trade is therefore very important to the Canadian economy From Table 5.2 we see that in 2014, the compensation paid to employees (wages, salaries, and benefits) made up 51 percent of GDP, or $28 253 per person. TABLE 5.1 Per Person llions/year- S/year) % of Total GDP: Total Expenditure and Its Components This table shows total GOP for the Canadian economy n 2014 and the breakdown of 3D between different categories of expenditure. When reading the table, recall the identity Y- C+ I+G+NX Gross domestic product, Y Investment, Government purchases, G Net exports, NX equals exports minus imports) $1973 1107 478 406 $55 822 31 311 13 530 11 496 527 100% 56 24 21 ($625 $643) -($17671-(32% -$18 199-33%) TABLE 5.2 Total Per Person GDP: Total Income and Its Components This tahn shows total GOP for the Canadian economy $1973 10096 51 28 Gross domestic product, Y Compensation of employees Gross operating surplus Gross mixed income Taxes lnss ibsidins Statistical discrepancy $55 822 28 253 15 364 8 288 929 543 210 categories of income. Gross operating surplus defines the income of corporations and government busi- ness enterprises. In 2014, this source of income made up 28% of GDP, or $15 364 per person. Gross mixed income defines the income paid to unincorporated busi nesses. This source of income explained 11% of GDP in 2014, or $6288 per per- son. The amount of taxes, less subsidies, paid by producers of goods and services accounted for 11% of GDP, or $5929 per person. Finally, the statistical discrepancy that closes the gap between the sum of all expenditures and the sum of all sources of income in the economy amounted to a very small amount in 2014; an amount equal to only $11 per person.

Answer 1

a) This is a magnificent example of GDP calculation. The case study given shows the expenditure and income methods of GDP estimation respectively.

b) The author tries to explain the expenditure and income methods of GDP estimation of a nation. The table 5.1 and 5.2 clearly shows what are the different components when we calculate income through these different methods. The author, through this example, tried to show that the income and expenditure methods are two sides of the same coin. Estimation of GDP by either of these methods will give you the same results. The author also tries to introduce the concept of per capita GDP. He clearly says that when we divide total GDP by the total population, we get the GDP amount per person in the country which is an indicator of prosperity status of the economy.

c). The following are the most important concepts discussed in the example;

Per Capita Income: Per capita Income is the total economy's income when we equally distribute it across the country's population. It is simply the GDP divided by the total population. It is an indicator of the economic status of the country.

The equivalency of the income and expenditure methods of GDP calculation: As we noted above, the income and expenditure methods are two sides of the same coin. It is based on the concept of the circular flow of income. As per the expenditure method, GDP= Consumption (C)+ Investment (I)+ Government Expenditure (G)+ Net Exports (Nx). The final component in the equation, next exports, shows the external connection of the economy. If the exports are greater than imports, it becomes an addition to GDP. If the export is less than imports, a negative amount is added to the GDP.

The income method of GDP calculation is based on the income flows of the circular flow of income. It conceives GDP as the sum of different flows of income in the economy. Here, we also take into account government income. Governments income is total taxes collected minus the total subsidies paid. If the taxes collected are greater than subsidies paid, the government has surplus which is recorded as an addition to GDP. If the reverse is the case, the amount is recorded as negative value in the calculation.

d). The example is attempting to lay out some concepts. It does not give any challenges or problems.