8.3.docx - 1 8.3 Two Main Methods of Measuring GDP i...

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1. 8.3- Two Main Methods of Measuring GDP i. Expenditure approach- computing GDP by adding up the dollar value at current market prices of all final goods and services ii. Income approach- Measuring GDP by adding up all components of national income including wages, interest, rent, and profits b. Deriving GDP by the expenditure approach i. Consumption Expenditures 1. Durable consumer goods- goods with life span of more than 3 years 2. Nondurable goods- goods used up within 3 years 3. Services- mental or physical labor or assistance purchased by consumers; items used by consumers that do not have physical characteristics ii. Gross private domestic investment 1. Creation of capital goods that can yield production and hence consumption in the future. 2. Investments in economics is only additions to productive capacity not transfer of assets 3. Producer durables or capital goods- goods that have expected service life of more than 3 years 4. Fixed investment- purchase of equipment and factories iii.
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