There are three ways of calculating GDP. First, the total value of output:Value of ice creams + Value of computers + Value of aircraft + ...It is important that only the value of final goods is included. We include only
the value of bread eaten by the consumer; if we also added in the various inputs
used to produce bread, such as the flour sold to the bakery, we would be double
counting.
Second, the total value of income:
Wages + Rents + Interest + ProfitWages are earned by workers, rents from renting out land or property, interest
from lending out money and profit by entrepreneurs/businesses from the
difference between revenue and costs.
And third,total expenditure:
Consumption + Investment + Government spending + Net exports (exports- imports)
In principle these methods should yield the same result,but in practice they
don’t and statisticians have to undertake many revisions, estimates and best
guesses to bring them into alignment. Total GDP gives a measure of the total
size of an economy. Table 1.1 gives estimated total GDP for selected countries
in 2012.
A country’s total GDP is a useful estimate of its economic influence in
global politics and is an indication of the size of its internal market,but it does
not reflect standards of living. Dividing the size of the economy by the total
population gives us average income or GDP per capita. Inflation will lead to
24 Sources of Growth in the Modern World Economy since 1950
Table 1.1 Total GDP in 2012 (current US$)Country National income US$ billionJapan 6,100
China 7,700
Vietnam 137
UK 2,400
South Korea 1,100
Saudi Arabia 589*
Cameroon 25
Ethiopia 34
Ghana 39* 2011.
Source:Data compiled from World Development Indicators(2014).