Question

Write down the three identities of calculating the GDP of a country by the three methods. Also explain why each of these should give us the same value of GDP.

Answer 1

Gross National Product (GNP) equals Gross National Income equals Gross national expenditure i.e.

GNP = GNI = GNE

These are equal because national income is a circular flow of income. Aggregate expenditure is equal to aggregate output which in turn, is equal to aggregate income. However each method has some different items, yet they show exactly identical results. Their identity can be shown in the following manner: Reconciling Three Methods of Measuring Gross