How do we measure GDP? Explain the two separate ways we can do this and the various components of GDP. How do we measure GDP over time and adjust for price changes?

How do we measure GDP? Explain the two separate ways we can do this and the various components of GDP. How do we measure GDP over time and adjust for price changes? How do we measure GDP between counties with different currencies? How do we measure GDP?

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Expert Solution

GDP : Gross Domestic Product. It is measured by taking the quantities of all final goods and services produced and sold in markets, multiplying them by their current prices, and adding up the total.

GDP can be measured by two approaches

Income approach: Income earned on what is produced. Its components are are Consumption of Employees, Operating Surplus, Mixed Income.

Expenditure approach: Sum of what is purchased in the economy. Its components are Private Final Consumption Expenditure(C), Government Final Consumption Expenditure (G), Investment Expenditure (I), Net Export (X-M).

Economic stability requires that the situations of excess demand and deficient demand are are corrected as fast as possible. The government does it through its revenue-expenditure policy( Fiscal Policy), and the central bank does it through which monetary policy.

In order to compare different countries currencies' GDPs, we need to convert them into a common currency. We can do this through exchange rate, the price of one country' currency in terms of another. And in the end GDP per capita is divided by GDP divided by the population.

Rahul Sunny answered 1 year ago

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