In Calculating GDP by the Expenditure Method,there Are Two Ways

question 169

Essay

In calculating GDP by the expenditure method,there are two ways to avoid the double counting of intermediate goods.Demonstrate your understanding of these two methods by showing how both produce the same calculation of contribution to GDP.Assume the following: 1)Iron ore is produced by iron mining,which is sold to steel makers for $30 million (we will make the simplifying assumption that iron mining uses no intermediate goods).2)The iron ore is all used to make steel,which is sold to automobile makers for $100 million.3)The steel is all used to make automobiles,which are sold to dealers for $250 million.4)All of the automobiles are sold by the dealers to consumers for $350 million.What are the two methods,and what contribution to GDP can be calculated by each method,from the above assumptions?

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Definitions:

Majoritarian

A governing principle where the majority's preferences or decisions are prioritized in the political process.

Pluralist

An advocate of a system in which power is distributed among multiple groups, allowing for a balance and a degree of influence in decision-making processes from varied social, economic, and cultural interests.

Gridlock

A situation in government where no progress is made due to the inability of the parties to reach a consensus or compromise, often resulting in legislative inaction.

Legislation

The process by which statutory laws are enacted by a legislative body through the proposal, debate, and voting on new bills.