The document discusses three methods of calculating GDP:
1. The output method measures GDP by adding up the total output of all industries, but this can result in double counting if the same goods are produced at different stages.
2. The income method includes all incomes earned from producing goods and services, excluding transfer payments which are not related to output.
3. The expenditure method calculates GDP as the total of consumption (C), investment (I), government spending (G) and net exports (X-M).
The document also briefly introduces the concept of the business cycle.
The document discusses three methods of calculating GDP:
1. The output method measures GDP by adding up the total output of all industries, but this can result in double counting if the same goods are produced at different stages.
2. The income method includes all incomes earned from producing goods and services, excluding transfer payments which are not related to output.
3. The expenditure method calculates GDP as the total of consumption (C), investment (I), government spending (G) and net exports (X-M).
The document also briefly introduces the concept of the business cycle.
The document discusses three methods of calculating GDP:
1. The output method measures GDP by adding up the total output of all industries, but this can result in double counting if the same goods are produced at different stages.
2. The income method includes all incomes earned from producing goods and services, excluding transfer payments which are not related to output.
3. The expenditure method calculates GDP as the total of consumption (C), investment (I), government spending (G) and net exports (X-M).
The document also briefly introduces the concept of the business cycle.
MEASURES OF ECONOMIC ACTIVITY The methods of calculating GDP • Output method- measures GDP by adding up the output produced by all the industries in the country. • Precaution- ensure that o/p is not calculated more than once • Ex: Assume that there are only 4 production firms engaged in production of garments Firm A PRODUCES RAW SELLS IT FOR RS1000 FIRM B COTTON Firm B CONVERTS IT INTO SELLS IT FOR RS 1500 FIRM C COTTON YARN Firm C MANUFACTURES SELLS IT FOR RS 2200 FIRM D COTTON CLOTH Firm D PRODUCES GARMENTS SELL THEM FOR RS FINAL CONSUMERS 3500 TOTAL VALUE OF RS RAW COTTON HAS ON THE CONTRARY , ALL THE 8200=(1000+1500+2200 BEEN COUNTED 4 VALUE OF FINAL TRANSACTIONS/GR +3500) TIMES GOOD= RS 3500. OSS OUTPUT COTTON YARN FOR 3TIMES,COTTON CLOTH FOR 2 TIMES. CERTAIN ITEMS COUNTED MORE THAN RESULTING IN OVER- PROBLEM OF DOUBLE ONCE ESTIMATION OF COUNTING(COUNTING NATIONAL PRODUCT THE VALUE OF THE SAME COMMODITY MORE THAN ONCE) To avoid this economists include the problem “value added” by each firm at each stage of production • Income method: includes all the incomes which have been earned in producing the country’s output. • Transfer payments, such as pensions and unemployment benefits are not included. This is because there is no corresponding output of goods and services. • GDP= Total National income+ Indirect tax+ depreciation + NFIA • GDP is not equal to national income. • Expenditure method: • GDP=C+I+G+(X-M) THE BUSINESS CYCLE