How is GDP calculated

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Business Finance

Question Description

How is GDP a measure of both output and income? How is it possible that both measures of GDP - income and expenditure approach - can end up with the same number?

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Explanation & Answer

Gross domestic product (GDP) is the quantitative measure of national income. It represent the all monetary value of goods and services produced with in a nation's geographic borders.

GDP =  Consumption + Govt Expenditures + Investments + Exports - Imports

Three approaches to calculates GDP are gives same results and end up with same number:

1- Expenditure approach: Calculate the final spending of goods and services

2- Product approach: Calculate the market value of goods and services produced.

3- Income approach: Sums the all incomes received by all producers in the country.

all these approaches ultimately doing the same thing which is related to goods and services, if we sum up all expenditures which we incurred on the production of goods and services and if we sell out them and earn income and only if we sum up all our nation income's which we get from our goods and services is also equivalent.

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