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State the GDP expenditure method formula.

Economics

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Alright KIMBE, let's tackle this circular flow problem.

Part a· 2 steps

  1. State the GDP expenditure method formula.

    The expenditure method calculates GDP as the sum of Consumption (C), Investment (I), Government Expenditure (G), and Net Exports (Exports (X) - Imports (M)).

    GDP=C+I+G+(X−M)\text{GDP} = C + I + G + (X - M)

  2. Substitute the values from Table 1.

    GDP=K42b+K15b+K18b+(K22b−K19b)\text{GDP} = \text{K}42\text{b} + \text{K}15\text{b} + \text{K}18\text{b} + (\text{K}22\text{b} - \text{K}19\text{b}) GDP=K42b+K15b+K18b+K3b\text{GDP} = \text{K}42\text{b} + \text{K}15\text{b} + \text{K}18\text{b} + \text{K}3\text{b} GDP=K78b\text{GDP} = \text{K}78\text{b}

    PNG's GDP is K78 billion.

    GDP=K78b\boxed{\text{GDP} = \text{K}78\text{b}}

Part b· 3 steps

  1. Calculate total leakages (S+T+M).

    Leakages are Savings (S), Taxation (T), and Imports (M).

    Leakages=S+T+M\text{Leakages} = S + T + M Leakages=K10b+K14b+K19b\text{Leakages} = \text{K}10\text{b} + \text{K}14\text{b} + \text{K}19\text{b} Leakages=K43b\text{Leakages} = \text{K}43\text{b}

  2. Calculate total injections (I+G+X).

    Injections are Investment (I), Government Expenditure (G), and Exports (X).

    Injections=I+G+X\text{Injections} = I + G + X Injections=K15b+K18b+K22b\text{Injections} = \text{K}15\text{b} + \text{K}18\text{b} + \text{K}22\text{b} Injections=K55b\text{Injections} = \text{K}55\text{b}

  3. Determine if the economy is in equilibrium.

    An economy is in equilibrium when total leakages equal total injections.
    Since K43b≠K55b\text{K}43\text{b} \neq \text{K}55\text{b}, the economy is not in equilibrium.
    Explanation: Total injections (K55b) are greater than total leakages (K43b).

    Leakages=K43b,Injections=K55b.Not in equilibrium.\boxed{\text{Leakages} = \text{K}43\text{b}, \text{Injections} = \text{K}55\text{b}. \text{Not in equilibrium.}}

Part c

What is happening to PNG's economy and what should the government do?
Since injections (K55b) are greater than leakages (K43b), there is an expansionary gap in the economy. This means that aggregate demand is exceeding aggregate supply, which could lead to inflationary pressures and economic growth beyond its sustainable potential.
The government should implement contractionary fiscal policies to reduce aggregate demand. This could involve decreasing government expenditure (G) or increasing taxation (T) to bring injections and leakages closer to equilibrium.

Economy is expanding (inflationary pressure). Government should decrease G or increase T.\boxed{\text{Economy is expanding (inflationary pressure). Government should decrease G or increase T.}}
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