Calculation Methods Flashcards
7 cards from real GDP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Calculation Methods flashcards as text
In the expenditure approach to GDP, which component represents government spending on goods and services?
Answer: Government consumption and investment (G)
In the expenditure approach, G includes all government purchases of goods and services but excludes transfer payments like Social Security.
Which of the following is subtracted in the expenditure approach to GDP?
Answer: Imports
Imports are subtracted in GDP = C + I + G + (X - M) because they represent spending on foreign-produced goods.
Under the income approach, what does 'net operating surplus' primarily represent?
Answer: Corporate profits and self-employment income
Net operating surplus captures profits earned by corporations and income earned by self-employed individuals.
The value-added method avoids double-counting by summing only:
Answer: The difference between output value and input costs at each stage
Value added at each stage equals the value of output minus the value of intermediate inputs purchased from other firms.
A U.S. bakery buys $500 of flour and sells $1,200 of bread. What is its contribution to GDP using the value-added method?
Answer: $700
Value added = $1,200 (output) − $500 (intermediate input) = $700, which is the bakery's unique contribution to GDP.
In the income approach, 'compensation of employees' includes:
Answer: Wages, salaries, and employer-paid benefits like health insurance
Compensation of employees encompasses all wages, salaries, bonuses, and non-wage benefits such as employer contributions to health insurance and pensions.
Which GDP calculation approach starts with industry output and traces value creation through production stages?
Answer: Production (output) approach
The production or output approach measures GDP by summing value added across all industries and production stages in the economy.