family.Moreover,
“gross” domestic product takes no account of
the wear and tear on the machinery, buildings, and so on (the
so-called capital stock) that are used in producing the output.
If this depletion of the capital stock, called depreciation,
is subtracted from GDP, we get net domestic product.Theoretically,
GDP can be viewed in three different ways.
• The production approach sums the “value added” at
each stage of production, where value added is defined as
total sales minus the value of intermediate inputs into the
production process. For example, flour would be an intermediate
input and bread the final product, or an architect’s
services would be an intermediate input and the building the
final product.•
The expenditure approach adds up the value of purchases
made by final users—for example, the consumption
of food, televisions, and medical services by households; the
investments in machinery by companies; and the purchases
of goods and services by the government and foreigners.•
The income approach sums the incomes generated by
production—for example, the compensation employees
receive and the operating surplus of companies (roughly
sales minus costs).GDP
in a country is usually calculated by the national statistical
agency, which compiles the information from a large
number of sources. In making the calculations, however,
most countries follow established international standards.
The international standard for measuring GDP is contained
in the System of National Accounts, 1993, compiled by the
International Monetary Fund, the European Commission, the
Organization for Economic Cooperation and Development,
the United Nations, and the World Bank.Real