What is GDP?
Gross Domestic Product (GDP):
The value of the goods and services produced in a country is the gross domestic product. The percentage that GDP grew (or shrank) from one period to another is an important way for the country to gauge how their economy is doing.
GDP = the total market value of the goods and services produced within the country in a year.
A good is a video game, a car, an apple, a gold ring. Goods are things that people make, grow or extract from the land.
A service is a haircut, a bus ride, computer repair, a doctor’s care. Services are actions that people do for someone else.
Market value is how much something costs in the marketplace. It’s what you pay for that video game or haircut.
Why is GDP important?
• The pace of economic growth affects jobs, businesses, and investments.
• Understanding the economy helps the public and policymakers make informed decisions.
• GDP helps to compare the economy of a country with economies around the world.
How is GDP calculated?
There is a four-part formula:
GDP = C + I + G + NX
C = Personal Consumption Expenditures
Also called consumer spending: the goods and services people buy, such as groceries, clothing, cell phone service, and health care.
I = Investment
This is business spending on fixed assets such as land, buildings, and equipment, plus investment in unsold inventory; also includes purchases of homes by consumers.
G = Government Spending
Spending by federal, state and local governments to provide goods and services, such as schools, roads or national defense.
NX = Net EXports
Also known as exports minus imports (X – M): the value of exports to other countries minus the value of imports into the country. Why are imports subtracted? Consumers, businesses and governments spend some of their money on imports. The country's production would be overstated if the formula didn’t remove imports.
GDP = The total market value of the goods and services produced within the country in a year.
What is not in GDP?
Some productive activities are left out. For example, GDP doesn’t count the value of services
parents provide for their own children, work volunteers do for charities or illegal activities.
The value of the goods and services produced in a country is the gross domestic product. The percentage that GDP grew (or shrank) from one period to another is an important way for the country to gauge how their economy is doing.
GDP = the total market value of the goods and services produced within the country in a year.
A good is a video game, a car, an apple, a gold ring. Goods are things that people make, grow or extract from the land.
A service is a haircut, a bus ride, computer repair, a doctor’s care. Services are actions that people do for someone else.
Market value is how much something costs in the marketplace. It’s what you pay for that video game or haircut.
Why is GDP important?
• The pace of economic growth affects jobs, businesses, and investments.
• Understanding the economy helps the public and policymakers make informed decisions.
• GDP helps to compare the economy of a country with economies around the world.
How is GDP calculated?
There is a four-part formula:
GDP = C + I + G + NX
C = Personal Consumption Expenditures
Also called consumer spending: the goods and services people buy, such as groceries, clothing, cell phone service, and health care.
I = Investment
This is business spending on fixed assets such as land, buildings, and equipment, plus investment in unsold inventory; also includes purchases of homes by consumers.
G = Government Spending
Spending by federal, state and local governments to provide goods and services, such as schools, roads or national defense.
NX = Net EXports
Also known as exports minus imports (X – M): the value of exports to other countries minus the value of imports into the country. Why are imports subtracted? Consumers, businesses and governments spend some of their money on imports. The country's production would be overstated if the formula didn’t remove imports.
GDP = The total market value of the goods and services produced within the country in a year.
What is not in GDP?
Some productive activities are left out. For example, GDP doesn’t count the value of services
parents provide for their own children, work volunteers do for charities or illegal activities.
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