The income approach to GDP calculation measures GDP by summing all the incomes derived from production activities. Let's break down why this is the correct approach and clarify why the other options are not accurate descriptions for the income approach to GDP.
1. All the incomes derived from production activities:
- The income approach focuses on calculating GDP by adding up all the incomes earned by households and businesses in the country. This includes wages, rents, interests, and profits. This method emphasizes the income generated from the production of goods and services.
2. The wealth of households, business, and government:
- This option is incorrect because the wealth of households, businesses, and government refers to the stock of assets they hold, not the income generated or the economic production activities within a specific period. GDP measures a flow of production and income over a year, not a stock of wealth.
3. [tex]$C+1+G+N Y$[/tex]:
- This formula is incorrect and does not represent a known approach to calculating GDP. The conventional formula using the expenditure approach is GDP = C + I + G + (X - M), where C is consumption, I is investment, G is government spending, and (X - M) is net exports (exports minus imports).
4. The total production of all final goods and services produced in a year within a country's borders:
- This statement describes the concept of GDP itself, which is the market value of all final goods and services produced within a country in a given time period. However, it does not specify the income approach. This overall definition fits more broadly but does not detail how GDP is calculated using income streams.
So, the statement that describes the income approach to GDP calculation correctly is:
- All the incomes derived from production activities.
In conclusion, the income approach measures GDP by summing all the incomes derived from production activities. This includes wages, rents, interest, and profits earned in the economy from producing goods and services. The numerical result confirming this method is the answer for the given question.
