How to calculate gdp
Method 1 of 3: Calculating GDP Using the Expenditure Approach
Start with consumer spending. Consumer spending is the measure of all spending a nation's consumers make on good and services during the year.
Start with employee compensation. This is the total of all salaries, wages, benefits, pensions and social security contributions.
Add in rent. Rent is simply the total income earned from property ownership.
Include interest. All interest (money earned by supplying capital) must be added.
Add proprietor's income. Proprietor's income is the money earned by business owners, including incorporated businesses, partnerships and sole proprietor-ships.
Add in corporate profits. This is the income earned by stockholders.
Include indirect business taxes. This is all sales tax, business property tax and license fees.
Calculate all depreciation and add it in. This is the decrease in value of goods.
Add in net foreign factor income. To calculate this, take the total payments received by domestic citizens from foreign entities and subtract the total payments sent to foreign entities for domestic production.
Method 3 of 3: Differentiating Nominal and Real GDP
Differentiate between nominal and real GDP for a more accurate picture about how a country is doing. The main difference between nominal and real GDP is that real GDP takes inflation into account. If you don't take inflation into account, you could believe that a country's GDP is increasing when really their prices are increasing.
Choose a base year. Your base year can be a year back, five years, 10, or even 100. But you need to choose a year against which to compare the inflation. Because, at heart, real GDP is a comparison. And a comparison is only really a comparison if two or more things — years and figures — are being weighed against one another. For a simple real GDP calculation, choose the year prior to the year you're looking at.
Decide how much prices have gone up from the base year. This number is also called the "deflator." If your rate of inflation from the base year to the current year is 25%, for example, you'd list that inflationary rate as 125, or 1 (100%) plus .25 (25%) times 100. For all cases of inflation, the deflator is going to be higher than 1.
Divide the nominal GDP by the deflator. Real GDP is equal to the ratio of your nominal GDP divided by 100. As an equation, it starts off like this: Nominal GDP ÷ Real GDP = Deflator ÷ 100.
Start with consumer spending. Consumer spending is the measure of all spending a nation's consumers make on good and services during the year.
- Examples of consumer spending would include the purchase of consumable goods like food and clothing, durable goods like tools and furniture, and services such as hair cuts and doctor visits.
- Examples of investments include materials or contracting services used when a business builds a new factory, equipment purchases and software to help a business run efficiently.
- If a nation's imports have a higher value than its exports, this number will be negative. If the number is negative, subtract it instead of adding it.
- Examples of government spending include payroll for public employees, spending on infrastructure and defense spending. Social security and unemployment benefits are considered transfer payments and are not included in government spending because the money is simply transferred from one person to another.
Start with employee compensation. This is the total of all salaries, wages, benefits, pensions and social security contributions.
Add in rent. Rent is simply the total income earned from property ownership.
Include interest. All interest (money earned by supplying capital) must be added.
Add proprietor's income. Proprietor's income is the money earned by business owners, including incorporated businesses, partnerships and sole proprietor-ships.
Add in corporate profits. This is the income earned by stockholders.
Include indirect business taxes. This is all sales tax, business property tax and license fees.
Calculate all depreciation and add it in. This is the decrease in value of goods.
Add in net foreign factor income. To calculate this, take the total payments received by domestic citizens from foreign entities and subtract the total payments sent to foreign entities for domestic production.
Method 3 of 3: Differentiating Nominal and Real GDP
Differentiate between nominal and real GDP for a more accurate picture about how a country is doing. The main difference between nominal and real GDP is that real GDP takes inflation into account. If you don't take inflation into account, you could believe that a country's GDP is increasing when really their prices are increasing.
Choose a base year. Your base year can be a year back, five years, 10, or even 100. But you need to choose a year against which to compare the inflation. Because, at heart, real GDP is a comparison. And a comparison is only really a comparison if two or more things — years and figures — are being weighed against one another. For a simple real GDP calculation, choose the year prior to the year you're looking at.
Decide how much prices have gone up from the base year. This number is also called the "deflator." If your rate of inflation from the base year to the current year is 25%, for example, you'd list that inflationary rate as 125, or 1 (100%) plus .25 (25%) times 100. For all cases of inflation, the deflator is going to be higher than 1.
Divide the nominal GDP by the deflator. Real GDP is equal to the ratio of your nominal GDP divided by 100. As an equation, it starts off like this: Nominal GDP ÷ Real GDP = Deflator ÷ 100.