Question

list the 3 alternative ways to measure GDP

Answer 1

The 3 alternative ways to measure GDP are :

1. The expenditure approach : This is the most widely used approach to measure GDP. This method adds up the market value of all domestic expenditures made on final goods and services in a single year, including investment expenditures,consumption expenditures, government expenditures, and net exports.

Formula :

• GDP = C + I + G + (X- M)
• C = Private consumption expenditure
• I = Investment Expenditure
• G= Government Consumption Expenditure
• X = Value of Exports
• M = Value of Imports

​2. The Production Approach This method also called the Value added or Net Product method. It requires three stages of analysis. First gross value of output from all sectors is calculated. Then, intermediate consumption such as cost of materials, supplies and services used in production of final output is derived. Then gross output is reduced by intermediate consumption to develop net production. One major drawback of this method is the difficulty to differentiate between intermediate and final goods.

3 The Income Approach Incomes approach is the total income earned by the factors of production that is owned by a country’s citizen. It add up all the income earned by households and firms in the year. The total expenditures on all of the final goods and services are also considered as income received as wages, interest income, profits and rent . By adding together all GDP is determined.

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