Chapter 3R, Problem 3MCQ

To determine

The question requires us to determine the approach for calculating GDP.

Explanation of Solution

There are three methods to calculate the GDP in an economy:

1. Income method approach
2. Expenditure method
3. Value-added method

According to the income method approach, the income generated from the factors of production i.e., land, labor, capital, and entrepreneurship are rent, wage, interest, and profit respectively. Sum of these four components: rent, wage, profit, and interest will represent the value of GDP in the country.

GDP = rent + wage + profit + interest

According to the expenditure method of calculating GDP, the national income (GDP) is the sum of consumption spending (C), investment spending (I), government expenditure (G), and net exports.

Net export = Export (X) − Import (IM)

GDP = C + I + G + X − IM

According to the value-added method of calculating GDP, the GDP is the difference between the ‘sum of the value of the intermediate goods/raw materials and ‘the value of final goods’.

GDP = Value of final goods − value of intermediate goods.

Thus, option “d” is correct.

Economics Concept Introduction

GDP is the measurement of final goods and services produced in an economy in a financial year.