The Gross Domestic Product (GDP) is one of the most commonly used indicators of country’s economics wealth. It is also usually used as a key indicator of the size of economy. Most often it is expressed as a comparison to a previous period of time (usually a quarter or a year).
How is GDP calculated?
GDP consists of four key components:
- Personal Consumption Expenditures
- Investment
- Government Spending
- Net Exports (Exports – Imports)
Thus, Gross Domestic Product is calculated by placing a monetary value on each of those four components and obtaining their sum. Let’s look closer at each of those.
Consumption
Consumption is usually the largest component of the healthy economy’s GDP. It consists of a sum of all private expenditures in the economy. Those are purchases of goods (durable and nondurable) and services. Important: Purchases of new houses are not included in the calculation.
Investment
This component mostly consists of business investments in the economy. Examples of such would be construction of a new factory or purchase of equipment for one. New house purchases will also be included in this component.
Government Spending
It is a sum of all government expenditures on final goods and services. This component would include all salaries government pays to workers in public sector of the economy, purchases of military equipment and investment expenditures. Unemployment payments are not included here.
Net Exports
Net exports is a simple difference between gross exports (what country gets from selling its goods and services to other countries) and gross imports.
What are the countries with the largest GDP (2018)?
- The United States (US GDP is at 4 year high)
- China
- Japan
- Germany
- The United Kingdom
- France
- India
- Italy
- Brazil
- Canada
What are the different types of GDP?
Since the Gross Domestic Product is a very broad measurement of the economy, there are many different ways to measure a country’s GDP. Thus, there are different types of GDPs, that can be used simultaneously to determine a country’s wealth.
Nominal GDP
This is a raw GDP measurement that doesn’t take in account any price changes. Therefore, it is not accounted for inflation.
Real GDP
This is the same GDP measurement, but it also takes in account the affects of inflation. It is calculated by multiplying a price deflator by the nominal GDP. Thus, if economy grew, but prices also grew by the same percentage, nominal GDP would show growth, while real wouldn’t. Real GDP is the most commonly used way to measure economic growth.
GDP per capita
This is the most common way to compare economies of different countries. Let’s say the US and China have the same GDPs (they don’t for now, but let’s assume so), but the US population is roughly four times less than China’s. Thus, average Chinese citizen gets a much smaller slice of the economic cake. This is why the economists usually divide Gross Domestic Product by the number of residents. It shows the country’s standard of living.
How it affects regular citizens?
While there is no direct effect of GDP on personal wealth (ie. the GDP growth doesn’t always mean increase in wages of a given person), it actually impacts all citizens in the long run. Investors usually look at GDP to decide wether to invest in the economy and compare countries’ growth rates to determine which to invest in. Thus, increase in GDP usually means that economy is growing, and more investments should be poured into it. More investments usually means more jobs, and more jobs usually means higher living standards. Moreover, the GDP affects interest rates, which are extremely important, especially for those wishing to lock themselves in a mortgage. Therefore, every resident should be interested in where his country’s economy stands to understand better his personal financial prospectives.
This article is part of the #EconBasics series in which we will explain in simple terms the fundamentals of Economics.
SpyToStyle
[…]we came across a cool web page that you simply could take pleasure in. Take a appear in the event you want[…]
future university
[…]Wonderful story, reckoned we could combine several unrelated information, nonetheless seriously worth taking a look, whoa did a single discover about Mid East has got far more problerms as well […]
جامعة المستقبل
[…]always a major fan of linking to bloggers that I like but really don’t get lots of link adore from[…]
future university
[…]The data talked about inside the report are several of the best readily available […]
fue
[…]one of our visitors not too long ago proposed the following website[…]
future university egypt
[…]Here are a few of the websites we advise for our visitors[…]
Natraj Pencil Packing Job Work From Home
[…]Wonderful story, reckoned we could combine a handful of unrelated information, nevertheless genuinely worth taking a look, whoa did 1 master about Mid East has got extra problerms at the same time […]
future university
[…]we like to honor quite a few other net websites on the net, even if they arent linked to us, by linking to them. Underneath are some webpages worth checking out[…]
جامعة المستقبل
[…]check beneath, are some absolutely unrelated websites to ours, having said that, they’re most trustworthy sources that we use[…]
future university egypt
[…]usually posts some incredibly fascinating stuff like this. If you are new to this site[…]
dalles caoutchouc
[…]always a massive fan of linking to bloggers that I really like but do not get a good deal of link really like from[…]
machines musculation
[…]just beneath, are quite a few totally not connected websites to ours, nevertheless, they may be certainly really worth going over[…]
future university
[…]Wonderful story, reckoned we could combine a number of unrelated information, nonetheless definitely really worth taking a look, whoa did one find out about Mid East has got much more problerms at the same time […]
fue
[…]just beneath, are several entirely not associated web sites to ours, on the other hand, they are surely worth going over[…]
diseño de paginas web
[…]one of our visitors not too long ago proposed the following website[…]
reputation defenders
[…]Every when in a whilst we choose blogs that we study. Listed beneath are the most recent websites that we choose […]
obituary
[…]Milions of cemetery records and online memorials […]
find a grave
[…]Milions of cemetery records and online memorials […]
gratis annonsering
[…]here are some hyperlinks to sites that we link to for the reason that we believe they are worth visiting[…]
brothers clothing
[…]usually posts some pretty fascinating stuff like this. If youre new to this site[…]
Chirurgie Tunisie
[…]just beneath, are quite a few absolutely not connected sites to ours, however, they’re certainly worth going over[…]
National Chi Nan University
[…]The information talked about within the post are some of the best readily available […]
Jaipur adventure tour
[…]the time to study or check out the material or web pages we’ve linked to beneath the[…]
french blue bulldog
[…]Sites of interest we have a link to[…]
cbd
[…]please visit the sites we adhere to, including this a single, as it represents our picks from the web[…]
french bulldog puppy for sale
[…]Wonderful story, reckoned we could combine some unrelated data, nevertheless actually worth taking a search, whoa did a single learn about Mid East has got far more problerms as well […]
faculty of pharmacy
[…]usually posts some extremely fascinating stuff like this. If youre new to this site[…]
Pharmaceutical Analytical Chemistry
[…]just beneath, are various entirely not connected websites to ours, on the other hand, they may be surely really worth going over[…]
تقدم تكنولوجي
[…]Here are a number of the sites we advise for our visitors[…]
Faculty of dentistry
[…]Here are a number of the sites we advise for our visitors[…]