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Here, we will show you the two different ways of calculating GDP using the information from different factors given in Table 1.
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Table 1:
| Transfer Payments |
$54 |
| Interest Income |
$150 |
| Depreciation |
$36 |
| Wages |
$67 |
| Gross Private Investment |
$124 |
| Business Profits |
$200 |
| Indirect Business Taxes |
$74 |
| Rental Income |
$75 |
| Net Exports |
$18 |
| Net Foreign Factor Income |
$12 |
| Government Purchases |
$156 |
| Household Consumption |
$304 |
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By using the data in Table 1 we can calculate the GDP using the expenditures approach. As you can see, the table contains more data than is necessary so you have to look for the parts which make up the expenditures approach to calculating GDP. Remember:
GDP = C + G + I + (X -M)
In this case the C is represented by Household Consumption which is $304. The G refers to Government Spending which is $156. I is gross private investment and is $124. (X-M) is the net exports and in the table is shown to be $18.
Therefore:
GDP = $304 + $156 + $124 + $18
GDP = $602
Back to Calculating GDP
Back to using the Expenditures Approach
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Table 1 also contains the data necessary to calculate GDP using the income approach.
Table 1:
| Transfer Payments |
$54 |
| Interest Income |
$150 |
| Depreciation |
$36 |
| Wages |
$67 |
| Gross Private Investment |
$124 |
| Business Profits |
$200 |
| Indirect Business Taxes |
$74 |
| Rental Income |
$75 |
| Net Exports |
$18 |
| Net Foreign Factor Income |
$12 |
| Government Purchases |
$156 |
| Household Consumption |
$304 |
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In this case we use the formula:
NI = W + R + i + PR
W is the wages that are represented by $67 in the table. Rental income is the R and is $75. Interest income is i and is $150. PR are business profits and are $200.
Therefore:
NI = $67 + $75 + $150 + $200
NI = $492
GDP = NI + Indirect Business Taxes + Depreciation
GDP = $492 + $74 + $36
GDP = $602
As you can see, in this case, both approaches to calculating GDP will give the same estimate. This is not always what happens and sometimes GDP will differ slightly when the different approaches are used.
Back to Calculating GDP
Back to using the Income Approach
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Back to National Income Accounting
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