What is usage calculation

What is usage calculation?


According to howsmb, the usage calculation is one of three methods for calculating gross domestic product (GDP). Unlike production approach and the income approach, the expenditure approach is based on the question of what the GDP is used.

In this lesson we will explain the importance of the usage calculation and how to use it. At the end you will have the opportunity to check your knowledge with a few exercises.

Why is the usage calculation important?

In addition to the production calculation and the distribution calculation, the usage calculation represents one of three types of calculation of the gross domestic product, which is one of the most important economic variables and is an elementary component of the national economic accounting.

It provides information about what the gross domestic product is actually used for by the individual economic subjects and over which areas it is distributed.

Usage calculation in the national accounts

Calculation of GDP using the usage calculation

In addition to the production calculation and the distribution calculation, the gross domestic product (GDP) can also be determined using the usage calculation. The term already indicates that this method focuses on the use of GDP, i.e. what the individual economic actors actually spend it on.

This procedure is therefore also referred to as the expenditure approach. The domestic goods and services that make up GDP can be invested, exported, or consumed.

The different types of use can be broken down into four broad areas:

  • Private consumption:

All expenditures within a period (usually one year) that are made by private households fall into this area. These are, for example, spending on food, mobility and rent.

  • Gross Investments:

The gross investments are expenditures that serve the purpose of using a certain good over a longer period of time for the purpose of production or the provision of services in order to increase consumption. These investments can come from both private companies and the state. For example, a company invests in new production facilities, while government investments go into infrastructure projects such as highways.

  • State consumption:

State consumption summarizes state expenditures which, for example, serve to maintain institutions (offices, security). Consumer spending can be divided into individual consumption and collective consumption.

Individual consumption includes z. B. Expenditures in the areas of culture and health care, in addition to those of collective consumption expenditure on administration, environmental protection and research.

  • External contribution:

The trade balance is the balance of imports and exports, with the value of the imported goods subtracted from that of the exported goods. A positive external contribution always arises when more goods are exported than imported.

The gross domestic product is calculated by adding the ranges listed above:

Private consumer spending
+ State consumer spending
+ Gross investment
+ Exports of goods and services
Imports of goods and services
= gross domestic product

How meaningful is the usage calculation?

The usage calculation shows how the gross domestic product is used. Particular attention is paid to the relationship between government investment (as part of gross investment) and government consumption.

Those funds that flow into government consumer spending must be used again in the next accounting period, while investments are planned for a longer period of time. They usually come with a lasting benefit.

One example of this is the funding of universities by the state. They train skilled workers who, through their qualifications, generate higher incomes and thus increase tax revenues.

What is usage calculation