Question

Define the GDP and what are the methods of calculating it?

Answer 1

Answer :-

Gross Domestic Product ( GDP) -  
GDP is the total monetary value of good and services produced in a country and evaluated in market price.The growth of a country is measured by GDP, the increase in GDP shows the economic progress of that country.Today, the concept of GDP is a well-known and widely accepted concept of measurement of economic development all over the world. Through the concept of GDP, we can understand the economic situation and growth in our country as well as the entire world.

Methods for GDP calculations -

(a) Expenditure Approach
(b) Income Approach
(c) Production Approach

(a) Expenditure Approach -

In this GDP calculation , we evaluates Consumer Spendings ( C), Investments ( I) , Government spending ( G) and Net Exports ( X - M)

GDP = C + I + G + ( X - M )

1) Consumption ( C ) - It is largest GDP Components which consist private expenditures of goods and services . Like we as citizen purchases several goods and services like clothes , food items etc.

2) Investment ( I) - It consist business investment like investment by households on new houses

3) Government Spendings ( G) - It is calculated by sum of government spendings on final goods and services like payments of public services , purchase of government vehicles , weapons etc .

4) Net Export ( X- M) - X represents the export of final goods and services and M represents import of final goods and services .

( b ) Income Approach

GDP = Compensation of employees + Rent + Interest + Proprietor’s Income + Corporate Profits + Indirect business taxes + Depreciation + Net foreign factor income

(c) Production Approach

GDP = Final value of all goods and services - Intermediate Cost