Different Approaches of GDP Accounting

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Q. 7.1
Peter operates a garage which provides customers with car repairing services. In March 2012 he bought a 5-year old second hand car from his customer at a price of $60,000. He paid his worker $5,000 to repair and clean up the engine, and then successfully sold the car to another customer for $68,000 in June 2012. Discuss how the 2012 GDP and its components were affected under the three different approaches of GDP accounting.

A garage was operated by Peter. In March 2012, he spent $60,000 buying a 5-years old second-hand car. Also, he paid his worker $5000 to repair and clean up the engine. In June 2012, he sold the car at $68,000. In Q7.1, It requires us to find the changes of gross domestic product (GDP). First, I would state the definition of GDP. GDP refer to the market value of all the final goods and services produced within a country in a given time period. Final goods and services are the goods and services that are produced for its final user and not as a component of another good or service. Therefore, we should not calculate the intermediate good or service in GDP. There are three approaches to calculate GDP. Three different approaches are expenditure approach, income approach and output approach. The expenditure approach measures GDP by using data on consumption expenditure, investment, government expenditure on goods and service, and net export. Using the expenditure approach, the changes of GDP is the changes of consumption expenditure on car services. As the wages of the worker is the intermediate services, we cannot count it in the expenditure approaches. Otherwise, we will have a double count problem. Final goods is the car $68000. Since the car is a 5-years old second car, it is used goods. $60000 is included in the GDP of 2007. Consumption expenditure refer to the expenditure on consumption goods and services. $68000 minus $60000 is $8000. The consumption expenditure is increased $8000 so the GDP is increased $8000. The...
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