To determine the GDP, There are three primary methods :

GDP Based on Spending

The expenditure approach or spending approach, which is the most common method, calculates the monies spent by the different groups that participate in the economy. For instance, consumers spend money to buy various goods and services and businesses spend money as they invest in their business activities (buying machinery, for instance). And governments also spend money. All these activities contribute to the GDP of a country. In addition, some of the goods and services that an economy makes are exported overseas, their net exports. And some of the products and services that are consumed within the country are imports from overseas. The GDP calculation also accounts for spending on exports and imports.

This approach essentially measures the total sum of everything used in developing a finished product for sale. To return to the example of the ship, the finished ship’s contribution to a nation’s GDP would here be measured by the total costs of materials and services that went into the ship’s construction. This approach assumes a relatively fixed value of the completed ship relative to the value of these materials and services in calculating value added.

A country's gross domestic product can be calculated using the following formula: GDP = C + G + I + NX. C is equal to all private consumption, or consumer spending, in a nation's economy, G is the sum of government spending, I is the sum of all the country's investment, including businesses capital expenditures and NX is the nation's total net exports, calculated as total exports minus total imports (NX = Exports - Imports).

GDP Based on Production

The production approach is something like the reverse of the expenditure approach. Instead of exclusively measuring input costs that feed economic activity, the production approach estimates the total value of economic output and deducts costs of intermediate goods that are consumed in the process, like those of materials and services. Whereas the expenditure approach projects forward beyond intermediate costs, the production approach looks backward from the vantage of a state of completed economic activity.

GDP Based on Income

Considering that the other side of the spending coin is income,  and since what you spend is somebody else’s income, another approach to calculating GDP – something of an intermediary between the two aforementioned approaches – is based on a tally of the national income. Income earned by all the factors of production in an economy includes the wages paid to labor, the rent earned by land, the return on capital in the form of interest, as well as an entrepreneur’s profits. An entrepreneur’s profits could be invested in his own business or it could be an investment in any outside business. All this constitutes national income, which is used both as an indicator of implied productivity and of implied expenditure.

In addition, the income approach factors in some adjustments for some items that don’t show up in these payments made to factors of production. For one, there are some taxes – such as sales taxes and property taxes – that are classified as indirect business taxes. In addition, depreciation – which is a reserve that businesses set aside to account for the replacement of equipment that tends to wear down with use – is also added to the national income.