Gdp

In: Business and Management

Submitted By blaine
Words 896
Pages 4
INTRODUCTION:

GDP (Y) is the measure of the value of all final goods and services bought for their final use in an economy for a given time period.

The model of the circular flow of income makes it apparent that, in a given time period, income equals amount of expenditure which in turn equals the value of output sold in the economy as a whole.

Income = Expenditure = Output (Value Added)

Therefore, there are three methods to measuring GDP. These are the Income, Expenditure and Output methods.

The income method measures GDP by adding together the total of all factor incomes paid to households by firms for the use of resources. Incomes are divided into 5 categories: compensation of employees, interest for capital, rental income, profits for entrepreneurship and proprietor’s income. Seeing as incomes are calculated at factor cost rather than market price, further adjustments must be made to calculate GDP. Indirect business taxes and depreciation incurred must be added and subsidies subtracted.

Y = Income + Depreciation + Indirect Business Taxes
+ Net Income - Subsidies

The expenditure method measures GDP by adding together all expenditures on all final goods and services made by all sectors of the economy. Expenditure is divided into 4 categories: Consumption Expenditure (C), Investment (I), Government Purchases of goods and services (G) and Net Exports (Exports – Imports) (NX).

Y = C + I + G + NX

The output method measures GDP by adding together the total of the value added at each stage of production made by all sectors in the economy.

Value Added = Sales – purchases of working capital? ? ?

Add eg

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

GDP is used to measure how well off people are in a material sense and is intended to be a measure of economic…...

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