Answer: GDP is measured using the expenditure approach and the income approach. The expenditure approach uses the streams of spending and adds together the total expenditure, or spending, on final goods and services. Thus the expenditure approach calculates the sum of consumption expenditure, investment, government expenditure on goods and services, and net exports. The income approach uses another of the circular flows to calculate GDP. The income approach adds together all sources of income and then incorporates a few additional adjustments. Thus the income approach calculates the sum of compensation of employees, net interest, rental income of persons, corporate profits, and proprietors' income. The sum is "net domestic product at factor cost." To change this sum to GDP, which is calculated at market prices rather than factor costs, and which is the gross product rather than net product, indirect taxes are added and subsidies subtracted and then depreciation is added. Any statistical discrepancy is added to (or subtracted from) GDP calculated using the income approach.
Answer: GDP is measured using the expenditure approach and the income approach. The expenditure approach uses the streams of spending and adds together the total expenditure, or spending, on final goods and services. Thus the expenditure approach calculates the sum of consumption expenditure, investment, government expenditure on goods and services, and net exports. The income approach uses another of the circular flows to calculate GDP. The income approach adds together all sources of income and then incorporates a few additional adjustments. Thus the income approach calculates the sum of compensation of employees, net interest, rental income of persons, corporate profits, and proprietors' income. The sum is "net domestic product at factor cost." To change this sum to GDP, which is calculated at market prices rather than factor costs, and which is the gross product rather than net product, indirect taxes are added and subsidies subtracted and then depreciation is added. Any statistical discrepancy is added to (or subtracted from) GDP calculated using the income approach.
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