What are the three approaches to calculating GDP?

Production or value added, income, and expenditure; in theory the three give the same total.

Why is value added used instead of total sales?

Value added counts only the new value each stage creates, so the total equals the value of the final product and intermediate goods are not double counted.

S4 Economics National Income Practice Paper 3 | Value added, GNI and the limits of GDP, 10 questions with answers

2026-11-01

Tutor Prep Guide · Secondary Economics

The third set of ten national income questions, from the three approaches and value added through the GNI conversion, real growth and the limits of GDP, each with an answer and a one-line explanation.

Direct answers This paper has 10 questions covering the three approaches, the value-added method, the GNI conversion, real growth and the limitations of GDP; suggested time is 20 minutes.

01 Paper details (check answers afterwards)

Item	Detail
Questions	10
Suggested time	20 minutes
Difficulty mix	Foundation 3 · Intermediate 4 · Challenge 2 · Error redo 1
Chapter	S4 Economics: National Income
Level	S4 (DSE)

02 Questions (10 items)

FoundationWhich three angles make up the three approaches to calculating GDP?
FoundationWhat is the usual definition of an economic recession?
FoundationWhat is the principle behind GDP and GNP (GNI)?
IntermediateConsumption is HK$250 billion, investment HK$60 billion, government spending HK$50 billion, exports HK$100 billion and imports HK$90 billion. What is GDP by the expenditure approach?
IntermediateWages are HK$220 billion, rent HK$50 billion, interest HK$40 billion, profit HK$50 billion and depreciation HK$10 billion. What is GDP by the income approach?
IntermediateFollowing the previous question, if net factor income from abroad is -HK$20 billion, what is GNP?
IntermediateNominal GDP is HK$370 billion and the deflator is 125. What is real GDP?
ChallengeReal GDP rises from HK$280 billion to HK$296 billion. What is the real growth rate?
ChallengeA farmer sells wheat for $100, a miller sells flour for $180 and a bakery sells bread for $300. What is GDP by the value-added approach?
Error redoWhat is wrong with the claim that a rise in GDP means living standards must have improved?

03 Answers and one-line notes

#	Answer	One-line note
1	Production (value added), income and expenditure.	In theory the three approaches give the same result.
2	Real GDP falls for two consecutive quarters.	Real rather than nominal figures are used so that price changes are removed.
3	GDP follows the territorial principle; GNP follows the resident principle.	Output of a foreign-owned factory here counts in GDP but not in GNP.
4	HK$370 billion.	250 + 60 + 50 + 10, with net exports of HK$10 billion.
5	HK$370 billion.	It matches the expenditure figure, showing both methods give the same number.
6	HK$350 billion.	370 minus 20, because foreign firms earn more here than residents earn abroad.
7	HK$296 billion.	370 divided by 1.25 removes the price increase.
8	About 5.7%.	The increase of HK$16 billion divided by the original HK$280 billion, times 100%.
9	$300.	Value added is 100, 80 and 120, summing to 300, which equals the value of the final product.
10	Population growth, prices, income distribution, environmental damage and leisure also matter; real GDP per head comes closer to living standards.	If the population rises with the total, output per person may not improve.

04 What to do after marking

After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
Repeat the same item two days later; move to the next paper only when both attempts are correct.
Parents only need the answer and note columns; there is no need to explain every item.

Answer all ten questions, then verify each one against the single-line explanation.Tutor Registration →

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