What are the three methods for calculating GDP?
Added value method
To correctly calculate GDP, you need to take into account all the products and services that were manufactured in a given year, but without double counting. That is why the definition of GDP refers to final goods and services.
The deduction of the binary calculation is allowed by the index of the added price, which expresses the difference between firms’ sales of their finished products by purchasing materials and services from other firms.
Method of calculating GDP by expenditure
Since GDP is defined as the monetary value of the marginal products manufactured during the year, it is necessary to look for the sum of all expenses of economic entities on the purchase of marginal products. When finding GDP on the basis of expenditures, the following values are summed up:
residents’ purchasing costs (C);
general private investment in the public economy (Ig);
national procurement of goods and services (G);
net dumping (NX) represents the difference between a country’s exports and imports.
GDP = C + Ig + G + NX.
Method of calculating GDP by income
We represent GDP as the sum of factor income, which means to find it as the sum of the salaries of owners of factors of production. The GDP includes the income of all entities that operate within the geographical framework of a given country, both representatives and citizens of other countries.
