##### Gross Domestic Product and everything involved with it?

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I do not understand Gross Domestic Product

I tried to give you best information about GDP so you can understand it completely.

The gross domestic product(GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.

Measuring GDP is complicated (which is why we leave it to the economists), but at its most basic, the calculation can be done in one of two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total.

The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports.

1. The following equation is used to calculate the GDP: GDP = C + I + G + (X - M) or GDP = private consumption + gross investment + government investment + government spending + (exports - imports).

2. Nominal value changes due to shifts in quantity and price.

**Examples
of Calculating GDP**

Here, we will show you the two different ways of calculating GDP using the information from different factors given in Table 1.

**Using the Expenditures Approach**

**Table 1: Expenditures**

Transfer Payments |
$54 |

Interest Income |
$150 |

Depreciation |
$36 |

Wages |
$67 |

Gross Private Investment (I) |
$124 |

Business Profits |
$200 |

Indirect Business Taxes |
$74 |

Rental Income |
$75 |

Net Exports (X-M) |
$18 |

Net Foreign Factor Income |
$12 |

Government Purchases (G) |
$156 |

Household Consumption (C) |
$304 |

By using the data in
Table 1 we can calculate the GDP using the expenditures approach. As you can
see, the table contains more data than is necessary so you have to look for the
parts which make up the expenditures approach to calculating GDP. The necessary
data is highlighted within the table.

Remember:

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

In this case the C is
represented by Household Consumption which is $304.

The Grefers to Government Spending which is $156.

Iis gross private
investment and is $124.

(X - M)is the net exportsand in the table is shown to be $18.

Therefore:

**GDP = $304 + $156 + $124****+ $18**

**GDP = $602**

**Using the Income Approach**

Table 1 also contains the data necessary to calculate GDP using the income approach.

**Table 1: Income**

Transfer Payments |
$54 |

Interest Income (i) |
$150 |

Depreciation |
$36 |

Wages (W) |
$67 |

Gross Private Investment |
$124 |

Business Profits (PR) |
$200 |

Indirect Business Taxes |
$74 |

Rental Income (R) |
$75 |

Net Exports |
$18 |

Net Foreign Factor Income |
$12 |

Government Purchases |
$156 |

Household Consumption |
$304 |

In this case we use the formula:

**NI = W + R + i + PR**

**W**is thewages that are represented by$67 in the table.

Rental income is the **R** and is$75.

Interest income is **i** and is$150.**PR**arebusiness profits and are$200.

Therefore:

**NI = $67 + $75 + $150 + $200**

**NI = $492**

**GDP = NI + Indirect Business Taxes +
Depreciation**

**GDP = $492 + $74 + $36**

**GDP = $602**

As you can see, in this case, both approaches to calculating GDP will give the
same estimate. This is not always what happens and sometimes GDP will differ
slightly when the different approaches are used.

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