The question requires us to determine the approach for calculating
Explanation of Solution
There are three methods to calculate the GDP in an economy:
- Income method approach
- Expenditure method
- Value-added method
According to the income method approach, the income generated from the factors of production i.e., land, labor, capital, and entrepreneurship are rent, wage, interest, and profit respectively. Sum of these four components: rent, wage, profit, and interest will represent the value of GDP in the country.
GDP = rent + wage + profit + interest
According to the expenditure method of calculating GDP, the
Net export = Export (X) − Import (IM)
GDP = C + I + G + X − IM
According to the value-added method of calculating GDP, the GDP is the difference between the ‘sum of the value of the intermediate goods/raw materials and ‘the value of final goods’.
GDP = Value of final goods − value of intermediate goods.
Thus, option “d” is correct.
GDP is the measurement of final goods and services produced in an economy in a financial year.
Chapter 3R Solutions
Krugman's Economics For The Ap® Course
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