Output methods

It is the Market value of all final goods and services calculated during 1 year. In other words, add up the value of all goods and services produced in the country.

There are three stages in calculating it.

Firstly, the Gross Value of domestic output in various economic activities is estimated

Secondly, the value of intermediate consumption, i.e., the cost of material, supplies and services used to produce final goods or services is determined.

Finally, intermediate consumption figures are deducted from Gross Value to obtain the Net Value of Domestic Output.

Income method

In this methods GDP is derived by adding up all income i.e. wages and salaries, profits, rent and interest.

Expenditure method

All expenditure incurred by individual during 1 year.

GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).

Y = C + I + G + (X ? M)

To derive GDP using the expenditure approach, we must look at each of the separate components of expenditures and then add them together. These components are consumption expenditures, investment, government expenditures, and net exports.

Consumption is spending by households on goods and services. Goods include household spending on durable goods, such as automobiles and appliances, and non durable goods, such as food and clothing. Services include such intangible items as haircuts and medical care.

Investment is the purchase of goods that will be used in the future to produce more goods and services. It is the sum of purchases of capital equipment, inventories and structures.

Government Purchases include spending on goods and services by local, state and central governments. It includes the salaries of government workers as well as expenditures on public works.

Net Exports equal the foreign purchase of domestically produced goods(exports) minus the domestic purchases of foreign goods (imports). The net in net exports refers to the facts that imports are subtracted from exports.

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