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:

Extensive Form

A representation of games (in game theory) that illustrates the sequence of moves, available strategies, and potential outcomes in a tree diagram.

First-Mover Advantage

The competitive advantage gained by the initial significant occupant of a market segment.

Extensive Form

In game theory, a detailed representation of a game that includes the order of players' moves, their choices at every node, and the outcomes resulting from each combination of choices, displayed as a decision tree.

Simultaneous Game

A strategic situation where each player must make their decisions at the same time, without knowledge of the other players' choices.