Canadian Securities Course (CSC) Level 1 Practice Exam

What are the three ways to measure GDP?

1. The expenditure approach, the income approach, and the production approach.

2. The income approach, the expenditure approach, and the savings approach.

3. The production approach, the investment approach, and the trade approach.

4. The consumption approach, the imports approach, and the exports approach.

The correct answer is: The expenditure approach, the income approach, and the production approach.

The accurate method of measuring Gross Domestic Product (GDP) involves three primary approaches: the expenditure approach, the income approach, and the production approach. The expenditure approach calculates GDP by adding up all the expenditures made in the economy on final goods and services. This includes consumer spending, business investments, government spending, and net exports (exports minus imports). The income approach, on the other hand, measures GDP by summing all incomes earned in the production of goods and services, such as wages, profits, rent, and taxes, minus subsidies. This method provides insight into how income is distributed among the factors of production. The production approach, also referred to as the output approach, focuses on measuring the actual output produced by industries in the economy. It adds up the value added at each stage of production, which helps to avoid double counting. These three approaches are interconnected and should yield the same GDP figure, provided the data is measured accurately. This comprehensive approach ensures that GDP reflects the overall economic activity in a country. Other options do not align with the standard methods recognized for GDP measurement and therefore cannot be seen as appropriate alternatives.