ECMA06 Tutorial #1 Answer Key
• The expenditure approach: GDP = C + I + G + X – IM
• GDP = $619.6B + ($214.0B + (– $1.0B)) + $198.4B + $496.2B – $427.1B
GDP = $1100.1B
• Note: I = Fixed capital formation + Change in inventories. We do not include capital
consumption allowances (CCA) because it is already included in fixed capital formation.
Factor Income Approach:
• The factor income approach: GDP = wages + interest + profits + income of unincorporated
business (farm + non-farm + government) + CCA + indirect taxes minus subsidies + IVA.
• GDP = $557.1B + $58.5B + $133.8B + ($64.7B + $2.9B + $10.8B) + $141.2B + $132.0B +
GDP = $1099.7B
• Typically, the expenditure approach and the factor income approach will not give the same
answer due to statistical discrepancy.
• Since both approaches must give us the same GDP number, we divide the difference in two
and add half to the low side and subtract half from the high side.
• In our example, the difference is $0.4B. We will subtract $0.2B from the GDP calculated
using the expenditure approach and add $0.2B to the GDP calculated using the factor income
• As a result, both approaches will give us a GDP of $1099.9B, and the statistical discrepancy
• GDP (using the expenditure approach) calculates the total (market) value of final goods and
services produced within the country in a given year. Thus, only final goods and services
produced within the country should be included in the calculation.
• However, consumption, investment, and government spending include all spending on final
goods and services by households, firms and all levels of government, and these spending
may include imported goods.
• Given imported goods are not produced in Canada, we have to subtract the value of imported
goods from the total in order to get the true value of goods and services produced in Canada
in a given year.
Implication on the interpretation of consumer spending data:
• The inclusion of imported goods in con