Question

• GDP income approach versus expenditure approach.  Which one is more accurate and why?

Answer 1

Answer - In the income approach , the income earned by the various people such as salary , wage , business profits earned by the domestic residents are included.

In the expenditure model , the expenditure on consumption , investment , the government expenditure and net exports are included

In income method GDP = Mixed income + operating surplus + compensation of employees by the employer - Net factor income from abroad + depreciation + net indirect taxes

In expenditure method GDP = C + I + G + (X-M)

The expenditure method is more than the income method . This is because in the income method , transfer payments are not included , the income stated may not be fully accurate. It depends upon person if he gives the correct infomation. On the other hand , expenditure method is a shorter and more accurate way of GDP calculation.