Income Approach
Definition
The income approach is one method used to calculate a country's gross domestic product (GDP). It measures GDP by adding up all incomes earned within an economy, including wages, rents, profits, and interest.
Analogy
Imagine you are baking a cake with different ingredients. The income approach is like adding up all the costs of those ingredients - flour, sugar, eggs - to determine how much you spent on making the cake.
Related terms
Expenditure Approach: The expenditure approach is another method used to calculate GDP. It measures GDP by summing up all final expenditures made within an economy, such as consumption, investment, government spending, and net exports.
National Income Accounting: National income accounting refers to the methods used to measure an economy's overall performance through indicators like GDP.
Disposable Income: Disposable income represents the amount of money individuals have available after paying taxes. It can be spent or saved at their discretion.
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