Question

Revenue 700 000
Purchases 187 000
Transport 25 000
Wages and salaries 156 000
25 percent of 525 000 interest on loan for 2 years ago
5000 rent per month

Calculate GDP using income or factor payments approach

Answer 1

Solution:

GDP under factor payments approach =

$GDP = W+I+R+PR$

$W=Wages$

$I=Interests$

$R=Rents$

$PR=Business \;profits$

Therefore:

$W=156,000$

$I=25\%\times 525,000=131,250 \;for \;2years. \;1\;year \;will\;be\;\frac{131,250}{2} =65,625$

$R=5,000\;per \;month\times 12=60,000$

$PR=700,000-187,000-25,000=488,000$

Therefore GDP using the Factor payments approach will be:

$GDP=156,000+65,625+60,000+488,000$

$GDP=770,625$