The Gross Domestic Product (GDP) And Its Importance:- Gross Domestic Product (GDP) is one of the most widely used measures of an economy’s output or production. It is defined as the total value of goods and services produced within a country’s borders in a specific time period – monthly, quarterly or annually. GDP is an accurate indication of an economys size, while GDP per capita has a close correlation with the trend in living standards over time, and the GDP growth rate is probably the single best indicator of economic growth. As Nobel laureate Paul A. Samuelson and economist William Nordhaus put it, “While GDP and the rest of the national income accounts may seem to be arcane concepts, they are truly among the great inventions of the twentieth century.” Here’s why. GDP Calculations :- GDP can be calculated either through the expenditure approach (the sum total of what everyone in an economy spent over a particular period) or the income approach (the total of what everyone earned). Both should produce the same result. A third method – the value-added approach – is used to calculate GDP by industry. Expenditure-based GDP produces both real (inflation-adjusted) and nominal values, while the calculation of income-based GDP is only carried out in nominal values. The expenditure approach is the more common one and is obtained by summing up total consumption, government spending, investment and net exports. Thus, GDP = C + I + G + (X – M), where C is private consumption or consumer spending; I is business spending; G is government spending; X is exports, and M is imports. *****mg*****
Posted on: Fri, 14 Feb 2014 10:30:00 +0000
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