Unit 2 notes: 01/29/16

Two ways of Calculating GDP

1. Expenditure Approach- add up all spending on final goods and services produced in a given year.                                                                                                                                                   To calculate: GDP= C+Ig+G+Xn ( exports-imports)
2. Income approach- add up all the income that resulted from selling all final goods and services produced in a given year. 

            To calculate: GDP= W (wages) + R (rents) + I (interest) + P (profits) + statistical adjustments: 

• Indirect business taxes 
• Depreciation (consumption of fixed capital) 
• Net foreign factor payment 

Both methods should give the same answer and both answers should equal. 

Compensation of Employees-  includes wages, salaries, fringe benefits, social security, health and pension pens