Question

How is GDP actually measured? I mean, how do they know the value of the final goods & services produced? Do they ask business for their balance sheets quarterly? Do they estimate the value?

Answer 1

No that would be a very long process @Matt24, it is calculated in a simpler method called aggregate expenditure, as total spending equals to output. Have you learnt that yet?

Answer 2

First of all, thank you for your time :)

Now, yes, I do know about the expenditure method. The thing is, I still don't get it. How do they measure expenditures on final goods & services? Say, you've got a wheat-producing company. Some flour is sold to bakers while another part of the flour produced is sold to housewives who intend to bake a cake. How does the statistical agency differentiate between the first kinds of sales and the second? Because the first aren't included in the GDP, but the second are (as housewives would count as a final user).

Look forward to hearing from you again @AnImEfReaK

Answer 3

It's just a rough estimate really, of consumption, government spending, investment and net exports- nothing specific. Your just looking really deep into it, but you shouldn't worry about exactly what each business gets and the sum of everything.... Look at the bigger picture, that's what macroeconomics is all about. The more you think about it this way it'll get more difficult.

Answer 4

I understand the expenditure approach and what the GDP means. What I'm looking to grasp is how it's measured in real life. What would I do if they told me today to measure GDP in my country by myself? Knowing that it means C + I + G + NX is worthless if I don't know how I can get the values of C or I.

Answer 5

You shouldn't worry they won't ask you that... It's a long and difficult process, assessing each type firms and how much output they make, and adding that and then looking tat each of the expenses of the government.

Answer 6

Ok thank you!

Answer 7

Is that what you didn't get?

Answer 8

Yes, I'll be glad to answer any economic questions for you :)

Answer 9

Yeah, basically. I mean, I don't know how my business contributes to GDP. Of course I understand it's producing goods & services which will be included in GDP, but my main question is: will anyone come to pick up my data on how many goods I sold this month/year to measure GDP?

Answer 10

I don't think the production of every single firm will be looked into, just a network of firms or the main ones. How long would that take though...

Answer 11

Yeah exactly. Unless you just measured income and that's it. Sounds simpler to measure than the product or expenditure approach.

Answer 12

There are many ways to calculating the GDP anyway :) I guess the product and expenditure approach are just rough estimates.