GDP (Gross Domestic Product) Formula and Components

Study Notes

GDP (Gross Domestic Product) is the total value of all final goods and services produced within a country's borders over a specific time period, usually a year.

GDP = Consumer Spending + Investment + Government Spending + (Exports - Imports)

Consumer Spending (C): expenditure by households on goods and services
Investment (I): expenditure by businesses on capital goods, such as new buildings and equipment
Government Spending (G): expenditure by the government on goods and services, including salaries of public employees
Exports (X): value of goods and services produced within the country and sold to other countries
Imports (M): value of goods and services produced in other countries and sold within the country

GDP is a widely used indicator of a country's economic performance and growth
It helps policymakers and businesses make informed decisions about investments and resource allocation
It provides a basis for international comparisons of economic performance among countries

GDP does not account for non-monetary transactions, such as household work and volunteer activities
It does not capture income inequality or distribution of wealth
It is not a perfect measure of economic welfare, as it does not account for environmental and social costs.

Gross Domestic Product (GDP) is the total value of all final goods and services produced within a country's borders over a specific time period, usually a year.

GDP is calculated by adding Consumer Spending, Investment, Government Spending, and the difference between Exports and Imports.

Consumer Spending refers to expenditure by households on goods and services.
Investment refers to expenditure by businesses on capital goods, such as new buildings and equipment.
Government Spending refers to expenditure by the government on goods and services, including salaries of public employees.
Exports refer to the value of goods and services produced within the country and sold to other countries.
Imports refer to the value of goods and services produced in other countries and sold within the country.

Nominal GDP is measured in current prices.
Real GDP is measured in constant prices, adjusted for inflation to reflect the actual value of goods and services.
GDP growth rate is the percentage change in real GDP from one period to another.

GDP is a widely used indicator of a country's economic performance and growth.
It helps policymakers and businesses make informed decisions about investments and resource allocation.
It provides a basis for international comparisons of economic performance among countries.

GDP does not account for non-monetary transactions, such as household work and volunteer activities.
It does not capture income inequality or distribution of wealth.
It is not a perfect measure of economic welfare, as it does not account for environmental and social costs.