In this article, we would cover the Income Approach to Measure GDP. GDP stands for Gross Domestic Product. There are mainly three ways to measure GDP –
- Expenditure Approach,
- Production Approach and,
- Income Approach.
We have already covered the Expenditure approach and Production approach. Do check the above links. As the term itself suggests, the income approach would include the income received by all the factors of production. This will include wages and associated benefits to the employees, corporate profits, and depreciation.
Income Approach to Measure GDP
In this case, GDP would be –
GDP = National Income + Depreciation + Net Factor Income (Foreign)
where,
National Income – would be corporate profits, wages, and associated benefits to employees and other related income.
Depreciation – we need to add it to get the final GDP figure. Usually, we subtract it but to have the correct measure of GDP – we need to add it back.
Net factor income (Foreign) – some of the income is earned by a nation’s citizens in foreign countries which needs to be adjusted.
If you want to know about U.S. GDP figures. Then, these are available on the U.S. Bureau of Economic Analysis (BEA) website.
In conclusion, we have covered Income Approach to Measure GDP. There will be exciting days ahead. We would cover topics like Measuring inflation, reasons which ultimately lead to Hyperinflation, Interest rates, etc. We started with how to measure GDP first. It provides a broad idea of how things work. Gradually, we would see how different variables interact in an economy.