Calculating GDP INCOME EXPENDITURE AND PRODUCTION APPROACH PAYMENT

Calculating GDP : INCOME, EXPENDITURE AND PRODUCTION APPROACH PAYMENT FOR RESOURCES (1) HOUSEHOLD SECTOR FIRMS PAYMENT FOR G & S (3) GOODS & SERVICES (2) 1] INCOME APPROACH OR METHOD 2] EXPENDITURE APPROACH 3] PRODUCTION APPROACH OR METHOD

INCOME APPROACH • This method measures GDP as the sum of all incomes earned by the households for use of the factors of production. • To calculate GDP by this method, statistics NZ, uses data collected from I) employees - Salaries & Wages II) Businesses - Profits III) Government - indirect taxes Under NZSNA, the terms used are as follows: Compensation of employees (salaries & wages) plus Gross operating surplus (profits + depreciation) plus Net indirect taxes (indirect taxes minus subsidies) = GDP Income Approach

CALCULATING GDP USING CIRCULAR FLOW DIAGRAM CONSUMPTION EXPENDITURE (C) HOUSEHOLDS PRODUCERS INCOME (Y) In this simple circular flow diagram, Total Income is equal to consumption expenditure. Y=C

FINANCIAL SECTOR INVESTMENT (I) (C) SAVINGS (S) HOUSEHOLDS PRODUCERS (Y) In this extended circular flow, GDP equals consumer spending plus savings or investment Y = C + I (where I = S)

FINANCIAL SECTOR INVESTMENT (I) (C) G SAVINGS (S) GOVERNMENT HOUSEHOLDS PRODUCERS Tr T (Y) In this circular flow, GDP equals Y=C+I+G Where G equals government spending

FINANCIAL SECTOR INVESTMENT (I) (C) G GOVERNMENT HOUSEHOLDS M PRODUCERS Tr T X (Y) In this circular flow, GDP equals Y = C + I + G + (X - M) Where (X - M) is the difference between export receipts and import payments OVERSEAS SECTOR SAVINGS (S)

PRODUCTION OR VALUE ADDED APPROACH • Calculate the value of goods & services by adding the costs of the firm involved in Production. • Statistics NZ does this by collecting via surveys from NZ business. • The value of the GROSS OUTPUT of each industry is calculated. • The intermediate consumption (goods) sold to other firms towards final goods production is also calculated. • These two figures GROSS minus INTERMEDIATE, gives an estimate of the Value Added by the industry. • The value added by each of the industries is summed up and overall figure of GDP is arrived at. $50 PRODUCTION APPROACH FOR BRICK MAKING $150 $100 Extraction of Raw materials (Clay) Manufacture of bricks Retail of Bricks