Gross Domestic Product or GDP, is defined as
1:money paid to the government in taxes to support public goods and service
2:the value of all good and service produced within domestic borders
3:the value of exports minus the total value of imports
4: a period of decline in overall income and emploment
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The correct definition of Gross Domestic Product or GDP is option 2: the value of all goods and services produced within domestic borders.
To calculate GDP, you can use one of the following methods:
1. Expenditure Approach: This approach calculates GDP by adding up all the spending on final goods and services within an economy during a specific time period. It includes four categories of expenditures: consumption (C), investment (I), government spending (G), and net exports (X - M).
GDP = C + I + G + (X - M)
- Consumption (C): This category includes the spending on goods and services by individuals and households.
- Investment (I): It represents the spending on capital goods, such as machinery, equipment, and infrastructure, by businesses and governments.
- Government spending (G): This includes the spending done by the government on public goods and services, such as defense, infrastructure, and public administration.
- Net exports (X - M): It measures the difference between a country's exports (X) and imports (M). If exports exceed imports, it is a trade surplus, and if imports exceed exports, it is a trade deficit.
2. Income Approach: This approach calculates GDP by summing up all the incomes earned by individuals, businesses, and governments within an economy during a specific time period. It includes categories such as wages, salaries, profits, rents, and taxes.
3. Production Approach: This approach calculates GDP by summing up the value-added at each stage of production within an economy. It considers the value-added by various industries and sectors, such as agriculture, manufacturing, and services.
Overall, GDP provides a measure of the total economic output or production within the domestic borders of a country, and it is widely used to gauge the economic health and growth of a nation.