Shared by: shanilahori
Gross domestic product The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and input for a given country's economy. GDP can be defined in three ways, all of which are conceptually identical. First, it is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time (usually a 365-day year). Second, it is equal to the sum of the value added at every stage of production (the intermediate stages) by all the industries within a country, plus taxes less subsidies on products, in the period. Third, it equal to the sum of the income generated by production in the country in the period—that is, compensation of employees, taxes on production and imports less subsidies, and gross operating surplus (or profits). The most common approach to measuring and quantifying GDP is the expenditure method: GDP = consumption + gross investment + government spending + (exports - imports), or, GDP = C + I + G + (X - M). Components of GDP Each of the variables C (Consumption), I (Investment), G (Government spending) and X - M (Net Exports) (where GDP = C + I + G + (X - M) as above) * C (Consumption) is private consumption in the economy. This includes most personal expenditures of households such as food, rent, medical expenses and so on but does not include new housing. * I (Investment) is defined as investments by business or households in capital. Examples of investment by a business include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in Investment. * G (Government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits. * X (Exports) is gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added. * M (Imports) is gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as domestic. Types of GDP and GDP growth 1. Current GDP is GDP expressed in the current prices of the period being measured 2. Nominal GDP growth is GDP growth in nominal prices (unadjusted for price changes). 3. Real GDP growth is GDP growth adjusted for price changes.