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Gross Domestic Product

How Is GDP Determined?

Example: the Production Approach

The production approach is also known as the Net Product or Value Added method. This method consists of three stages:

  1. Estimating the gross value of domestic output in various economic activities;
  2. Determining the intermediate consumption -- i.e., the cost of material, supplies, and services used to produce final goods or services; and
  3. Deducting intermediate consumption from Gross Value to obtain the Net Value of Domestic Output.

For measuring the gross output of domestic product, economic activities (industries) are classified into various sectors. After classifying economic activities, the gross output of each sector is calculated by either of the following two methods:

  1. By multiplying the output of each sector by their respective market price and adding them together, or
  2. By collecting data on gross sales and inventories from the records of companies and adding them together.
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