Question:medium

Write down any three identities of calculating the gross domestic product of a country by the three methods of estimating national income.

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Three GDP methods: Value Added, Income (factor payments), Expenditure (C+I+G+X-M) -- all identically equal.
Updated On: Sep 23, 2026
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Solution and Explanation

Step 1: Think of the economy's circular flow of income:
Whatever is produced generates an equal amount of income for factors of production, which is then spent by households/government/firms — production, income, and expenditure are three views of the same flow.

Step 2: Write the formula matching each view:
Production view: sum of value added at each stage (avoids double counting intermediate goods). Income view: sum of factor payments (wages+rent+interest+profit) plus depreciation and net indirect taxes. Expenditure view: sum of final spending, C+I+G+(X-M).

Step 3: Note why all three must match:
Since one firm's output value becomes another's income, which becomes someone's expenditure, in a closed accounting system the three totals are identically equal — this identity is the basis for cross-checking national income estimates.

Final Answer:
Production method (sum of value added), Income method (sum of factor incomes + depreciation + net indirect taxes), and Expenditure method (C+I+G+X-M) are the three GDP identities.
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