GDP: Measuring Total Production & Income.
A state can measure GDP in the three ways through the value-added, income, and total domestic expenditure approach. The current projections about the wage income, interest rent and profit income can appear on the news. How to calculate GDP to benchmark against the previous year and to guess about a likelihood of an acquisition, say in the healthcare business? Which approach is better?
The person must calculate a value of the total final goods and services produced in a country for the given quarter of the year or a year known as GDP. The income approach suggests calculation of GDP as sums of total income that businesses pay to residents of the country for such factors as land, labor, and capital. As the incomes exclude transfer payments of different kinds of benefits which cannot contribute to the acquisition of goods and services, they are referred to as factor incomes.
The National Income and Product Account consist of two big categories of incomes: wage income and interest, rent, and profit income. Each 1 U.S.D. in the worth of production of these two incomes should match the GDP, because 1 U.S.D. worth of products should generate 1 U.S.D. of factor income (National Income Accounts 2006).
The other measure we should produce is the Real GDP, which operates the numbers expressed in the prices of the previous year1.
As we have calculated the relative GDP for this year we received a vital insight into the growth of the economy, for example, we can figure out in which cycle an economy is now. As the economy is in an expansion cycle, the acquisition in the healthcare sector is very unlikely this year (Investopedia 2016).
Note
1. According to (Bade, and Parkin 2015) Real GDP is the value of goods expressed in the prices of the base year while Nominal GDP in the prices of the same year.
Works Cited
Bade, Robin, and Parking Michael. Essential Foundations of Economics. 14.2 Measuring U.S. GDP. 7th ed. Pearson, 2015. Web. 15 Feb. 2016.
"National Income Accounts." Collins Dictionary of Economics. Eds. C. L Pass, Leslie Davies, and Bryan Lowes. London: Collins, 2006. Credo Reference. Web. 15 Feb. 2016.
“Investopedia.” Economic Cycle, 2016. Web. 15 Feb. 2016.
