Question

 1. What are the FOUR key components that made up a macroeconomy under the expenditure approach AND which one of the FOUR is related to disposable personal income (DPI). Be sure to state how. In other words, out of the FOUR components, which one is influenced by DPI?

 2. In your own words, provide a complete definition of Gross Domestic Product (GDP)

 3. Comment on the differences between GDP and GNP (Gross National Product). Provide examples.

 4. Define Fiscal Policy and what should the government do with fiscal policy in order to pull the economy out of a recession?

 5. What are the FOUR key components that made up a macroeconomy under the income approach?

Answer 1

1) First of all let us know that expenditure method is way of calculating GDP .The four keycomponents that made up a macro economy under the expenditure method are consumption, investment, government spending and net exports. Out of these four factors the one which is influenced by DPI is consumption. This is because DPI means disposable personal income is the amount of money which is left with the household for spending and saving after a specific amount of taxes has been deducted from it. Thus it is influenced by DPI.

2.) GDP is simply the total value of all goods and services produced within the geographical boundary of the country. It defines the value of all goods and services of the country.

3.) GNP does not take into account income receipts from abroad whereas GDP excludes net income receipts from abroad. It includes only affairs and income within the country.

Example of GNP is when USA company earns profit from a company different country and then later earns income from these business . These such income receipts would be involved in GNP whereas GDP would only consider income from his country .

4.) Fiscal policy is the means by which a government tries to take control of an economy's tax rates and the spending level to monitor the economy processes. And accordingly it changes the monitory policy depending upon inflation or recession periods.

During recession the government should adopt expansionary fiscal policy to pull the economy out of recession. In this the government would reduce taxes and increase money supply in the economy so that as a result the economy's aggregate demand would increase. Thus reducing the pressure of recession built in the economy.

5.) The income approach includes the sum of a incomes of incomes from all factors of production. Thus the components of income approach are wages earned from labour, rent earned on land, interest earned on capital and lastly profits earned from entrepreneurial spirit and skill.