Name and explain briefly the TWO ways in which GDP may be calculated.
Solution
GDP represents the total dollar value of all goods and services produced over a specific time
period. In short, it\'s everything produced by people and businesses, including salaries of
workers.
The two ways in which GDP can be calculated are:
Expenditures Approach: This method uses the adding up all the expenditure done by the people
and government
GDP = C + I + G + (X-M), where consumption (C), investment (I), government spending (G)
and net exports (X – M)
Income Approach: In this method the income of all the people and government is added
NI = W + R + i + PR, where Labor Income (W) Rental Income (R) Interest Income (i) Profits
(PR).
Name and explain briefly the TWO ways in which GDP may be calculated.pdf
1. Name and explain briefly the TWO ways in which GDP may be calculated.
Solution
GDP represents the total dollar value of all goods and services produced over a specific time
period. In short, it's everything produced by people and businesses, including salaries of
workers.
The two ways in which GDP can be calculated are:
Expenditures Approach: This method uses the adding up all the expenditure done by the people
and government
GDP = C + I + G + (X-M), where consumption (C), investment (I), government spending (G)
and net exports (X – M)
Income Approach: In this method the income of all the people and government is added
NI = W + R + i + PR, where Labor Income (W) Rental Income (R) Interest Income (i) Profits
(PR)
