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There are three ways of measuring GDP, each of which should give the same answer. These methods are:

  1. The Output Method (all value added by each producer),
  2. The Income Method (all income generated) and
  3. The Expenditure Method (all spending).

Output Method

The Output Method measures GDP as the value of

Income Method

The income method measures GDP by adding together:

Expenditure Method

In the expenditure approach, as the name implies, we measure how much is spent on goods and services. It is important that spending is only counted once. We estimate:

The three approaches should theoretically give the same answer. However, in practice they will always diverge to some extent as they are derived from different data sources. This is the experience in all countries. Countries resolve the problem in various ways. In Ireland, the official level of GDP is taken to be the average of the income and expenditure estimates. A balancing item (statistical discrepancy) is also displayed which is half of the difference between the two estimates. This is the amount by which both estimates have to be adjusted to agree with the official level of GDP. The statistical discrepancy is just a small component of the total estimate because the source data is analysed in fine detail to resolve as many inconsistencies as possible. 

In making these estimates, CSO uses a wide variety of sources. Almost all of the different inquiries conducted by CSO are used in one way or another. For example, data on employment from the Labour Force Survey (LFS) helps in calculating total wages and salaries, the Household Budget Survey is used in estimating personal spending and so on. We also make a lot of use of data collected by the Revenue Commissioners and any other government bodies that can help improve the quality of the estimates.

Read next: Growth Rate

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