Question

Mario works part-time at a Pizza Hit and earns an annual wage plus tips of $15,000. He sold 4,000 pizzas during the year at $15.00 each. He was unemployed part of the year, so he received unemployment compensation of $3,000. During the past year, Mario bought a used car for $5,000. Using the expenditure approach, how much has Mario contributed to GDP?

Answer 1

The Gross Domestic Product (GDP) can be estimated by expenditure method using the following formula

GDP = C + I + G + (X-M)

Where (C) stands for consumption expenditure, (I) stands for Investment expenditure, (G) stands for Government spending and (X-M) stands for Net export (the difference between export minus import).

As per the question

Activity of Mario	Expenditure Method	Explanation
Mario earns $15000 as annual wage working part time at pizza hit	Not include in expenditure method	Income of the Mario in not included in expenditure method of estimation of GDP.
Mario sold 4000 pizza at $15 per unit in a year	included in expenditure method	Because the sold 4000 units of pizza by Mario are bought by consumer at $15 each. so the Mario’s output value = consumption expenditure (C) = 4000 x $15 = $60000 to be included in expenditure method estimation of GDP. Because the expenditure method includes the money value of all the goods produced
Mario received unemployed compensation $3000 for part of a year	Not Included in GDP	Unemployment compensation are known as transfer payments, they are not included in GDP because transfer payments given by Government without getting any productive output in return.
A used car is bought by Mario for $5000	Not Included in GDP	A used car is a product produced in other year should not be include in GDP, because the value of the car is already included in GDP in the year it was produced

Accordingly    GDP = C + I + G + (X-M)

GDP = 60000 + I + G + (X-M) = $60000         (the value of I,G,X and M are not given)

Mario’s contribution to the GDP is = $60000