Answer to Question #2305 in Macroeconomics for Aurnob1000
TK 10 billion extra transfer payment;
Tk 10 billion new government purchases ; and
Tk 5 billion increase in the net export
If all of the above are considered together ?
where: m = marginal propensity to consume, DI = disposable income, b = autonomous consumption (expenditure).
DI = Y - T, where Y is income (or GDP) and T represents total tax revenues.
Y = 0.7*(Y - 50) + 80 + 20 + 60 + 5.
Y = 53.8 billion.
New government purchases and increase in the net export will cause the increase in GDP according to expenditure approach of its calculation.
The above used method is expenditure approach.
For income approach, we must exclude transfer payments. Their effect is inversely proportional. Business transfer payments can be thought of as an extra cost tacked onto the price of goods, over and above factor payments, that compensates for bad debts incurred by the household sector.
GDP = Compensation of employees + Rent + Interest + Proprietor’s Income + Corporate Profits + Indirect business taxes + Depreciation + Net foreign factor income
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