Which Approach is Best Used to Measure GDP?
Answer (2)
Best Approach to Measure GDPExpenditure Approach - Best for analyzing demand and consumer behavior.Income Approach - Useful for wage policy and income distribution.Production Approach - Helpful for sectoral planning and productivity studies.Policymakers in the Philippines—such as the National Economic and Development Authority (NEDA) or Department of Finance (DOF)—use all three approaches to make informed decisions that support sustainable and inclusive economic growth.
3 Main Approaches to Measure GDP1. Production/Output ApproachWhat it does - Measures GDP by calculating the total value of goods and services produced, minus the value of intermediate goods.Best used when - Detailed production data by sector is available.Formula (GDP = Gross Value of Output – Value of Intermediate Consumption)2. Expenditure Approach (Most commonly used globally)What it does - Adds up all spending on final goods and services in an economy.Best used when - Data on consumption, investment, government spending, and trade is more accessible.Formula (GDP = C + I + G + (X – M))Where,C = ConsumptionI = InvestmentG = Government Spending(X – M) = Net Exports (Exports – Imports)3. Income ApproachWhat it does - Adds up all income earned by factors of production (wages, rents, interest, and profits).Best used when - Income tax and employment data are reliable and detailed.Formula (GDP = Wages + Rent + Interest + Profits + (Taxes – Subsidies))In other words, the expenditure approach is usually the most practical and widely used method to measure GDP because spending data is easier to collect and analyze. However, all three methods—expenditure, production, and income—are valid and ideally should lead to the same GDP number. Using them together helps ensure more accurate and reliable results.
