The expenditure and value-added approaches for calculating GDP arrive at the same final number, but they calculate that number in different ways. To illustrate this, think about the effects of the transactions in the following story about GDP:
Daesun pays Most Foods Market $1,200 to cater his daughter's engagement party. He's attracted by Most Foods Market's guarantee that he'll be happy with the catering, or he'll get his money back.
-Most Foods Market pays JoAnn's catering $850 to cater the party
JoAnn's Catering buys plasticware worth $200 from Kostko
Assume that Kostko gets the plasticware for essentially nothing and the other costs are $0.
To compute the contribution to GDP using the expenditure approach, you have to add the amount of money spent by buyers on final goods and services. Which of the following would be included in the expenditure method of calculating GDP? Check all that apply.
A. Most Foods Market spends $850
B. Daesun spends $1,200
C. JoAnn's Catering spends $200
The total contribution to GDP, measured by the expenditure method, is.
Now use the following table to compute the contributions to GDP for the economy using the value-added approach. In particular, indicate the cost of intermediate goods and teh value added at each stage of production.
Stage of Production Sale Value Cost of intermediate Goods Value added
Kostko $200 -
JoAnn's Catering 850
Most Foods Market 1,200
The contribution to GDP that you found using the expenditure approach corresponds to the sum of the at each stage of production.
A. Sale value
B. Value added C. cost of intermediate goods