What is the income approach to calculating GDP?

The income approach to calculating gross domestic product (GDP) states that all economic expenditures should equal the total income generated by the production of all economic goods and services. The alternative method for calculating GDP is the expenditure approach, which begins with the money spent on goods and services.

What is a GDP formula?

This GDP formula takes the total income generated by the goods and services produced. Total National Income – the sum of all wages, rent, interest, and profits. Sales Taxes – consumer taxes imposed by the government on the sales of goods and services. Depreciation – cost allocated to a tangible asset over its useful life.

What adjustments should be made to the Gross Domestic Product (GDP)?

Adjustments then must be made for taxes, depreciation, and foreign-factor payments. The income approach to calculating gross domestic product (GDP) states that all economic expenditures should equal the total income generated by the production of all economic goods and services.

What is the difference between income approach and expenditure approach?

The expenditure approach begins with the money spent on goods and services. Conversely, the income approach starts with the income earned (wages, rents, interest, and profits) from the production of goods and services. It’s possible to express the income approach formula to GDP as follows: