Theory question 107
National Income(a) Define Gross Domestic Product (GDP).
(b) Describe the output approach as a method of computing national income.
(c) Identify any three problems associated with the expenditure approach of calculating national income.
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(a) GDP is the total money value of all final goods and services produced within a country's borders in a year.
(b) The output approach adds the money value of final output (or value added) of all sectors – agriculture, mining, manufacturing, services – in a year; intermediate goods are excluded or only value added is counted to avoid double counting; net factor income from abroad is added to get GNP.
(c) Any three: double counting of intermediate spending; difficulty in separating consumption and investment spending; unrecorded spending (informal sector, subsistence); transfer payments wrongly included; price changes/inflation; inadequate and unreliable data; illiteracy and poor records.
Only final output or value added is counted.