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GPD Expenditure and Income Approach
GPD Expenditure and Income Approach
GPD Expenditure and Income Approach
GDP can be calculated as the sum of all final goods and services produced within a country in a given time period. The components of GDP
under the expenditure approach are:
GDP = C + I + G + (X-M)
Where:
C = Consumer spending
I = Investment spending
G = Government spending
X = Exports
M = Imports
Let's assume the following values for each component of the USA for the year 2022:
C = $1,000 billion
I = $500 billion
G = $300 billion
X = $200 billion
M = $250 billion
GDP = C + I + G + (X-M)
= $1,000 billion + $500 billion + $300 billion + ($200 billion - $250 billion)
= $1,000 billion + $500 billion + $300 billion - $50 billion
= $1,750 billion
Therefore, the GDP of USA in 2022 using the expenditure approach is $1,750 billion.
Income approach:
The income approach to calculating GDP involves adding up all the income earned by factors of production (i.e., labor and capital) in producing
goods and services during a given time period. The components of GDP under the income approach are:
Where:
Wages = Compensation of employees
Rent = Rental income
Interest = Net interest
Profits = Corporate and non-corporate profits
Statistical Adjustments = Adjustments for factors such as depreciation and indirect taxes
Let's assume the following values for each component in the same country for the year 2022:
Therefore, the GDP of the hypothetical country in 2022 using the income approach is also $1,750 billion.
Note that the two approaches result in the same GDP value, which is expected since GDP represents the total value of goods and services
produced in a country, whether measured by the expenditures made on them or the income generated from their production.