What is Gross Domestic Product (GDP) ?

Gross Domestic Product (GDP) is known as the market value of the final commodities and services which are produced by a country in a certain period. It is often related op the national accounts.In most cases, GDP is considered as an indicator of a standard living of the country. Commonly, there are three ways which can determine GDP, all of which have to provide the same result, such as output approach, expenditure approach, and also income approach.

From all of those three ways, the product approach is claimed to be one of the most direct way since it can sum the output of each enterprise class to make a total value. The expenditure approach has the principle that somebody buys the whole products and as the result, the value of the total product equals to the total expenditure of the people in buying goods. On the other hand, the income approach has the principle that the productive factors, such as producers, have the same income as their product value. Thus, the GDP is determined by the result of the sum of all the incomes of the producers.

Income approach measures gross domestic product through the sum of the incomes of the households from their labor, rent for land, interest for capital, and also profits for entrepreneurship. According to US National Income and Expenditure Accounts, there are five categories of incomes. The first category is salaries, wages, and supplementary labor income. The second is corporate profit. The third is interest along with the miscellaneous investment income. Farmer’s income is the fourth, and the fifth is the income from non-farm unincorporated businesses. All of those five income components sum to get the net domestic income. However, to get the domestic product, depreciation or capital consumption is added. Along with it, indirect taxes are also added.

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