Using the data in the table below, what is the economy's gross domestic product?Question 4

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In previous questions, we have estimated GDP in this economy using the income approach and the expenditures approach.  These two methods should come out with the same value for GDP.  However, our two estimates were quite different.  In the real world, this happens because calculating all of the expenditures or all of the income in an economy is a very complex process.  Therefore, we have to find the statistical discrepancy between our two estimates.  In this case, our statistical discrepancy was C$32 billion. 

We then take that discrepancy and “split the difference.”  We take half of the discrepancy and add it to the lower estimate.  We take the other half and subtract it from the higher estimate.  That allows the two estimates to match.

Half of C$32 billion is C$16 billion.  Therefore, we add C$16 billion to our C$162 estimate (expenditure approach) and subtract it from our C$194 billion estimate (income approach).  This gives us two estimates that are both C$178 billion.

We then say that the official GDP for our hypothetical economy is C$178 billion.