Question

Please fully answer the following related questions in detail: Why are there two measures of GDP? How is the income measure different from the expenditure measure? Why must the two measures, using different data, be equal? Why might they not be equal? Why do we need to compute nominal and real GDP using both measures? ?

Will rate answer dependant upon answer provided, thanks.

Answer 1

There are three measures of GDP measurement as given by SNA. Those being:

Product method

Expenditure method and

Income method.

These methods are present because sometimes it is different to find information about of the variable rendering the whole method to be obselete.

The two methods should be equal because they are arriving at the same measure from different approach.

They might not be equal if there is some problem with the data .

Nominal GDP is the value of goods and services produced at the current prices and they are affected by price change.

Real GDP is computed at constant prices and it is the better measure to look at the growth of output as it is net of price changes and gives the real output growth of the economy.