Question

According to the circular flow diagram shown below, GDP can be calculated in different but equivalent ways. Choose all the valid methods to calculate GDP from the following EXPENDITURE(S) Money spent on goods and services FIRMS goods, services labour force HOUSEHOLDS VALUE ADDED BY FIRMS ($) = INCOME ($) Income received as wages and profits from the production of goods and services U a) By adding up all the expenditures on domestic goods. U b) By adding up incomes generated in the production process. By adding up all the income, included transfer payments, less taxes paid by households U d) By adding up values created by firms in their production process. e) By adding up all the wealth household owns

Answer 1

As we know, the GDP of a country can be calculated in three ways:

1. Expenditure method

2. Income method

3. Production method.

So, the option a, b, c, and d are the right options because GDP cannot be calculated by adding up all the wealth household owns as GDP is the amount of the goods and services produced in the country during a year.