Economic Development Indices Questions Medium
The Gross Domestic Product (GDP) is calculated by summing up the total value of all goods and services produced within a country's borders during a specific time period, typically a year. There are three main approaches to calculating GDP: the production approach, the income approach, and the expenditure approach.
1. Production Approach: This approach calculates GDP by adding up the value of all final goods and services produced within the country. It includes the value added at each stage of production, excluding intermediate goods to avoid double-counting. This method focuses on the value of production and uses data from various industries to estimate GDP.
2. Income Approach: The income approach calculates GDP by summing up all the incomes earned by individuals and businesses within the country. It includes wages, salaries, profits, rents, and other forms of income. This approach emphasizes the distribution of income generated by production.
3. Expenditure Approach: The expenditure approach calculates GDP by summing up all the spending on goods and services within the country. It includes consumption by households (personal consumption expenditure), investment by businesses (gross private domestic investment), government spending (government consumption expenditure and gross investment), and net exports (exports minus imports). This approach focuses on the demand side of the economy.
These three approaches should ideally yield the same GDP figure, providing a comprehensive view of the economy. However, due to data limitations and statistical discrepancies, there may be slight differences between the results obtained from each approach.