•Value added = Value of the sales – Value of the purchases of intermediate goods and
2) The Expenditure Approach
•It adds up expenditure on domestically produced final goods and services by households,
firms, governments, and foreign buyers.
•Total expenditure is the sum of 4 major categories:
i) Consumption (C) – spending by households on goods and services.
ii) Investment (I) – spending on goods that are not for present consumption (building up
of [physical] capital, such as machinery and/or money)
There are 3 types of investment:
a) Business fixed investment – the purchases of capital equipment, machinery and
b) Residential investment – the building of new houses.
c) Inventory investment – the change in the quantity of goods that firms hold in
storage, including materials and supplies, work in process, and finished goods.
iii) Government spending (G) – spending on goods and services by different levels of
government, exclusive of government transfer payment.
iv) Net exports (NX), NX = Exports (X) – Imports (IM)
𝐺𝐷𝑃 = 𝐶 + 𝐼 + 𝐺 +(𝑋 – 𝐼𝑀) = 𝐶 + 𝐼 + 𝐺 + 𝑁𝑋
3) The Income Approach
It means income earned from production of goods and services.
There are two sources of income:
1) Factor incomes – income earned by factors of production or inputs such as wages,
salaries, interest, rent, business profits.
2) Non-factor payments – the difference between the prices paid for the final goods and
services and the amount received by production factors before income taxes are
removed. Non-factor payments include net indirect taxes, capital depreciation
4. Meaning of Consumer Price Index (CPI)
It is the most commonly used price index to compute inflation rate. It measures how the cost of
a basket of goods and services bought by a typical Canadian household has changed over time.
To construct the CPI, Statistics Canada will:
Choose a base year.