Domestic Product

:

The Expenditure Approach

Final Product
• Is a good or service that is purchased by the ultimate user and not intended for resale or further processing

Intermediate Product
• Is one that is intended for resale or further processing

Personal Consumption Expenditures (C)
• The purchases of households and non-profit institutions for final goods and services used to maintain the needs for living and enjoyment • Constitute the largest component of national product • Classification
1. Durable goods 2. Non durable 3. Services

Gov’t Purchases of Goods and Services (G)
• Expenditures of both national and local gov’t in maintaining their usual services • Ex.
– Payments of salaries and benefits to workers – Pay & allowances to the members of armed forces – Purchases for military and civilian purposes* *for education *defense & police protection *welfare services

Gross Domestic Investment (I)
• Refers to the total capital goods formed within the country in a given period w/out subtracting capital consumption or depreciation.

Classification:
• Construction
i. All construction is part of investment either for business or for residential ii. Includes: gov’t construction of highways, bridges, hospitals and other public works and construction performed by privte individuals and orgs.

• Inventory Change
i. The stocks of raw materials and finished goods or some work in process during a given period

Exports of Goods and Services (X)
• Products that we sell to other countries

Imports of Goods and Services (M)
• The products that we buy from other countries

National Product = C+I+G+X-M

GNP = C + Ig + G + X - M
• Where Ig = total expenditures for new plant, equipment, and residential buildings plus the change in inventories

NNP = C + In + G + X - M
• Where In = Ig – depreciation

or

NNP = GNP - Depreciation

Given: Inventories – P 595, 000 Trade – 876, 360 Interest – 336, 890 Export – 720, 310 Consumer Durable – 131, 860 Nat’l Defense – 810, 206 Wage – 977, 860 Import – 342, 163 Profit – 75% of interest Expenses from abroad – 381, 934 Sales tax – 361, 110 Clothing – 467, 981 Utilities – 123, 456 Depreciation – 69, 393 Salary of employees in gov’t – 939, 406 Rent – 643, 212

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