What is the income approach to measuring GDP? What will be an ...

[kwoodring]

What is the income approach to measuring GDP?
 
  What will be an ideal response?

Question 2

Refer to Table 2-10. This table shows the number of labor hours required to produce a wristwatch and a bushel of rice in Japan and Thailand.
 
  a. Which country has an absolute advantage in the production of wristwatches?
  b. Which country has an absolute advantage in the production of rice?
  c. What is Japan's opportunity cost of producing one wristwatch?
  d. What is Thailand's opportunity cost of producing one wristwatch?
  e. What is Japan's opportunity cost of producing one bushel of rice?
  f. What is Thailand's opportunity cost of producing one bushel of rice?
  g. If each country specializes in the production of the product in which it has a comparative advantage, who should produce wristwatches?
  h. If each country specializes in the production of the product in which it has a comparative advantage, who should produce rice?

[mrphibs]

Answer to Question 1

The income approach measures GDP by focusing on aggregate income. This approach sums all the incomes paid to households by firms for the factors of production they hire. The National Income and Product Accounts divide income into five categories: compensation of employees; net interest; rental income; corporate profits; and proprietors' income. Adding these income components does not quite equal GDP, because it values the output at factor cost rather than the market price and omits depreciation. So, further adjustments must be made to calculate GDP: Indirect taxes and depreciation must be added and subsidies subtracted.

Answer to Question 2

a. Thailand has an absolute advantage in the production of wristwatches.
b. Thailand has an absolute advantage in rice production.
c. Japan's opportunity cost of producing one wristwatch is 20 bushels of rice.
d. Thailand's opportunity cost of producing one wristwatch is 30 bushels of rice.
e. Japan's opportunity cost of one bushel of rice is 0.05 units of a wristwatch.
f. Thailand's opportunity cost of one bushel of rice is 0.03 units of a wristwatch.
g. Japan should specialize in producing wristwatches.
h. Thailand should specialize in producing rice.