Download Calculating GDP

Calculating Gross Domestic Product
GDP is the value of all goods and services produced by an
economy in one year.
There are three ways of calculating GDP
Calculating Gross National Product
The value of what firms create. To do this, only the value added by each
producer is counted. This is to avoid the problem of double counting
goods that are used in the production of other goods and services.
Eg: a loaf of bread ($1.80)
1.80
Price
($) 1.60
1.40
Finally,
A
farmerabuys
miller
baker
buys
grows
shopthe
flour
buys
some
wheat
and
bread
wheat
turns
for
$0.20
it
and
intosells
bread
anditgrinds
for
which
$0.20
$1.80
it is
into
sold
flour.
to
She
a
shop
sells
forthe
$1.40
flour for $0.80.
$0.40
is added to GDP
1.20
$0.60
1.00
is added to GDP
0.80
0.60
$0.60
is added to GDP
0.40
0.20
$0.20
Farmer
(wheat)
is added to GDP
Miller
(flour)
Baker
(bread)
Shop
Calculating Gross National Product
The value of what firms create. To do this, only the value added by each
producer is counted. This is to avoid the problem of double counting
goods that are used in the production of other goods and services.
Eg: a loaf of bread ($1.80)
+
+
+
=
$1.80
$0.40
$0.60
$0.60
$0.20
Calculating Gross National Product
Spending on goods and services by each of the four sectors of the
economy will reflect the value of goods and services it has produced.
onsumer Expenditure: spending by HOUSEHOLDS on final goods
and services
nvestment: spending by FIRMS on capital goods
overnment Expenditure: spending by GOVERNMENT on goods
and services (this excludes transfers such as benefits).
verseas expenditure: the balance of receipts from EXPORTED
goods and services less payments for IMPORTED
goods and services.
Calculating Gross National Product
Spending on goods and services by each of the four sectors of the
economy will reflect the value of goods and services it has produced.
NZSA accounts record this spending as:
+
+
+
=
Final Consumption Expenditure - private
Gross Fixed Capital Formation
Final Consumption Expenditure - government
Exports minus Imports
Calculating Gross National Product
Measuring the value of resources used in production will indicate the
value of goods and services that have been produced.
NZSA accounts record this spending as:
ent is the return to LAND (natural resources)
Compensation to employees
Consumption of fixed capital
ages will reflect the value of LABOUR used
Operating surplus
Indirect taxes and subsidies
nterest is paid on CAPITAL goods employed
rofits paid to ENTERPRISE will show their input into production
Calculating Gross National Product
The circular flow model shows us that the three approaches should give
us the same value for GDP.
The reality is that they rarely do.
An item “Statistical Discrepancy” is always added to the Expenditure
Approach to make them balance.
Incomes
Households
Firms
Production
Expenditure