UNIT 2: Two Ways Of Calculating GDP.

TWO WAYS OF CALCULATING GDP

1.      Expenditure approach:

You add up all of the spending on final goods and services produced in a given year.

Formula: GDP= C + IG + G + XN (EXPORT-IMPORT)

2.      Income approach:

You add up all the income that resulted from selling all final goods and services produced in a given year.

      Wages + rent + interest + profit + statistical adjustment (indirect business taxes,

Depreciation(consumption of fixed capital), net foreign factor payment).

NB: one useful way to remember the income approach formula would be to memorize this: WILLY REST IN PEACE.