How to Calculate GDP Macroeconomics

The Expenditure Approach

• 1

  Use the following formula to calculate GDP via the expenditure approach:

  GDP = C + I + G + (X-M)

• 2

  Determine the values for consumption (C) and investment (I). Consumption refers to household expenditures on durable goods, non-durable goods, and services. Investment refers to all expenditures from the business sector and includes changes in inventory, capital purchases and the cost of housing.

• 3

  Find the value for government expenditures (G). This value represents the total expenditure of the public sector, and includes things such as defense, salaries, and education. It does not include transfer payments, such as social security benefits.

• 4

  Subtract the given value for imports (M) from the total value of exports (X) to determine the figure for (X-M). Imports are defined as goods and services provided to foreign markets, while imports are goods and services purchased from foreign markets.

• 5

  Add these values together to arrive at a dollar value for GDP.

The Income Approach

• 6

  Use the following formula to calculate GDP via the expenditure approach:

  NI = W + R + i + PR

• 7

  Determine the values for labor income (W) and rental income (R). Labor income is the total dollar amount of all salaries, benefits, and wages. This includes things like unemployment insurance or taxes for programs like Social Security. Rental income refers to the total income received from property, and also includes royalties from copyrights or patents.

• 8

  Obtain the values for interest income (i) and profits (PR). Interest income refers to payments received by households from the lending of money to businesses. Profit is the amount left over after firms pay rent, salaries, interest on debts, etc.

• 9

  Insert these values into the income approach formula and add them together to determine a value for GDP, referred to as national income (NI) in this formula.