Wize AP Macroeconomics Textbook > Measuring a Nation's Income
GDP - Income Approach
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GDP - Income Approach
There are 3 main ways to calculate GDP using the income based approach.
Method 1
GDP (Income Approach) =
Wages + Business Profits + Interest and Investment Income + Capital Consumption Allowance (Depreciation) + Indirect Taxes - Subsidies + Farmers' Income + Unincorporated Non-farm Income
Where:
Net Domestic Income = Wages + Business Profits + Interest and Investment Income
and
Net Indirect Taxes = Indirect Taxes - Subsidies
Method 2
GDP (Income Approach) =
Wages + Corporate Profits + Miscellaneous Income + Depreciation + Unincorporated Business Income + Net Farm Income + Indirect Taxes - Subsidies + Government Enterprise Profit + Statistical Discrepancy
Method 3
GDP (Income Approach) =
Compensation of employees + Gross Operating Surplus (Rent, Profit, Interest) + Gross Mixed Income (Farmers and Miscellaneous Income) + Indirect Taxes - Subsidies + Statistical Discrepancy
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Example: GDP - Income Approach
A) Find the GDP using the expenditure based approach.
GDP (expenditure) = C + I + G + X - IM = 250 + (45 + 25) + 100 + 100 - 75 = $445
B) Using income based equation for GDP, find the value of subsidies.
GDP (income) = Wages + Profits + Interest and Investment Income + Depreciation (CCA) + Indirect Taxes - Subsidies + Farmers Income + unincorporated non-farm income
445 = 250 + 40 + (20+20) + 25 + 50 - subsidies + 50 + 40
445 = 495 - subsidies
subsidies = $50