2.3 Calculating GDP: Expenditure and income approaches
It is important to keep in mind that this section details the computational method for calculating total output in the economy using income. Income is the other side of the national income accounting process. For a country (or household) to be efficient, it must be able to detail the sources of its income. The point of the national income accounting system is to determine efficiency of a country, much like one would do in one's own household. Economists seek data about income as well as expenditure; ideally, the two should be in balance - that is, they should be the same amount. When income and expenditure are balanced, the country or the household is said to have a balanced budget.
Activity
Khan Academy: "Investment and Consumption"
- Watch this lecture, which discusses investment and consumption.
Khan Academy: "Income and Expenditure Views of GDP"
- Watch this lecture, which discusses the income and expenditure views of the GDP cycle.
Khan Academy: "Components of GDP"
- Watch this lecture, which discusses the components of GDP.
Khan Academy: "Examples of Accounting for GDP"
- Watch this lecture, which reviews examples of accounting for GDP.
John Petroff's "Macroeconomics, Chapter 5: National Income Accounting"
- Read this information on Gross National Product and Gross Domestic Product. Gross Domestic Product refers to production counted within a country's borders, whereas Gross National Product refers to production by domestic factors both inside and outside of a country's borders. In modern times, the Group of Seven (G7), Group of Eight (G8), and the Group of 20 (G20) use the GDP formula in measuring GDP growth, so the global economy uses the same formula to measure each country's economic welfare or well-being. This ensures that countries are on the same accounting page. Note that some countries use GNP as a metric, but GDP is the standard accounting system.
John Petroff's "Macroeconomics, Chapter 5 Quiz: National Income Accounting"
- Click the "Review Quiz" link at the bottom of the page and follow the instructions to take the quiz.
