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What is GDP? BASICS and Calculation FORMULA.

You may have heard the  term GDP a lot of times, and tried to think what it is actually.

GDP plays a major role in the development of a nation. It is a measure to develop the economy of a nation. 

What if I tell you that you get associated with the term GDP on a day to day basis.

GDP BASICS

When you drink a cup of coffee at some restaurant or take  a ride in a taxi, all this gets included in the GDP of a country.

You may still wonder what actually is GDP, so let's get straight to the point.

Full Form of GDP?

GDP stands for Gross Domestic Product.

What is GDP?

GDP is the total value of goods and services produced in a country during the period of one year. 

In simpler sense, it is the official measure of a country's economy health.

GDP can be considered a way in which goods and services are converted to their monetary value.

So you can say that GDP is the monetary value of all the finished goods and services produced within a country's borders in one year.

EXAMPLE

Say we take your house as an example. Sum total of income earned by people staying within the boundary of your house would constitute household income.

In similar context , sum total of income of all households lying within the boundary of an economy  is regarded as GDP.

In other words, sum of annual incomes of all individuals staying within the geographical boundary of an economy is called as GDP.



What's with the word Domestic?

The word 'Domestic' (in 'gross domestic product') means that we're only counting things that are produced within our domestic borders, whether they are produced by your countrymen or by foreigners. It doesn't matter.

Nothing that is produced outside of our domestic borders gets counted in the GDP.

How is GDP calculated?

Calculation of GDP is very complex process but here we are going to introduce you to the basics of GDP calculation. 

Here we will tell you briefly about how GDP is calculated and not get into the elaborate process.
There is a formula which is used to calculate the GDP of a country globally.

GDP Basics


FORMULA

The formula for GDP is: 

GDP = C + I + G + (Ex - Im),

where
“C” equals spending by consumers,
“I” equals investment by businesses,
“G” equals government spending and
“(Ex - Im)” equals net exports, that is, the value of exports minus imports.

The above mentioned formula forms the base of all GDP calculations.

So now you know the basics about GDP and  how it is calculated.

Hope this article was helpful. Thank You so much for reading this.
For any queries comment below.

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