Three Approaches To Measuring GDP
1. Expenditures Approach:
The total spending on all final goods and services (Consumption goods and services (C) + Gross Investments (I) + Government Purchases (G) + (Exports (X) - Imports (M))
GDP = C + I + G + (X-M)
2. Income approach (NY = National Income)
Using the Income Approach GDP is calculated by adding up the factor incomes to the factors of production in the society. These include
National Income (NY) + Indirect Business Taxes (IBT) + Capital Consumption Allowance and Depreciation (CCA) + Net Factor Payments to the rest of the world (NFP)
In this approach,
NY = Employee compensation + Corporate profits + Proprietor's Income + Rental income + Net Interest
CCA = I + I (I= Investment)
NFP = Payments of factor income to the ROW minus the receipt of factor income from the rest of the world.
Thus,
GDP - NFP = GNP （GROSS NATIONAL PRODUCT)
GNP - CCA = NNP ( NET NATIONAL PRODUCT)
NNP - IBT = NY (NATIONAL INCOME)
3. Value added Approach:
The value of sales of goods - purchase of intermediate goods to produce the goods sold.
Read more about this topic: Measuring GDP
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