Answer to Question #94094 in Macroeconomics for Lilly

Question

describe the relationship between the income flow and the expenditure flow as they each relate to Gross Domestic Product (GDP).

Answer 1

When determining GDP one can use the income approach that accounts for how much is earned in materials use in making goods and services and the expenditure approach which is an account on how much is used is spent on buying these goods and services.

When using the income approach to determine the GDP an individual adds all the income earned within the nations border. Here we add up rent, wages, interest and profits.

When using the expenditure approach to determine a country's GDP, one has to add up the amount spent on final goods and services in an economy. This approach takes into account consumption, investment, government spending, exports and imports.