What is GDP?
Gross domestic product (GDP) is a monetary measure of the value of all final goods and services produced in a period (quarterly or yearly).
What is GDP composed of?
- GDP includes all private and public consumption, government outlays, investments and exports minus imports that occur within a defined territory.
- GDP = Sum total of Gross value added of all the firms in the economy.
- GDP includes incomes by foreigners within the domestic economy and excludes incomes earned by the citizens in a foreign economy.
What does the GDP include and what does it not include?
Includes value of:
- Capital Goods ( Ex: Machinery)
- Income Generated by Indian MNCs abroad
- Income earned by foreigners within the domestic economy
Does not include value of:
- Intermediate goods (Ex: Raw materials)
- Income earned by Indians (citizens of a country in general) in a foreign economy
- Depreciation of capital equipment (NDP takes depreciation into account)
Gross domestic product can be calculated using the following formula:
GDP = C + G + I + NX
C – all private consumption, or consumer spending, in a nation’s economy
G – sum of government spending
I – sum of all the country’s investment, including businesses capital expenditures
NX – NX is the nation’s total net exports, calculated as total exports minus total imports (NX = Exports – Imports)
Types of GDP:
1) GDP by PPP
2) Nominal GDP
3) Real GDP
Each of these is discussed in different articles.