What is “Gross Domestic Product” (G.D.P.)
Gross Domestic Product (GDP) is a measure of the total value of all goods and services produced within a country's borders during a specific period, usually a year. It is an important indicator of the size and health of an economy. To calculate GDP, you need to consider four main components:
1. Consumer Spending (C) - This includes all the spending by households on goods and services, such as food, housing, healthcare, and entertainment.
2. Investments (I) - This includes all the spending by businesses on capital goods, such as machinery, buildings, and inventories.
3. Government Spending (G) - This includes all the spending by the government on public goods and services, such as infrastructure, education, and defense.
4. Net Exports (X - M) - This is the difference between a country's exports (X) and its imports (M). If a country exports more than it imports, it contributes positively to GDP. Conversely, if a country imports more than it exports, it subtracts from GDP.
To calculate GDP, you add up these four components: GDP = C + I + G + (X - M). The result is a monetary measure of the country's economic output. Governments, policymakers, and economists closely monitor GDP as it provides insights into the overall economic performance of a country.