Gross domestic product (GDP) is a measure of a country’s total output of goods and services in a particular period of time. It is the sum of all spending, saving, investment, and government purchases within a country’s borders.

Formula:

GDP = C + I + G + NX

where:

• C is consumer spending
• I is investment spending
• G is government spending
• NX is net exports

Components of GDP:

• Consumer spending: Expenditures by households on goods, services, and durable goods.
• Investment spending: Expenditures by businesses on capital goods, such as equipment, buildings, and inventory.
• Government spending: Expenditures by government agencies on goods, services, and transfers to individuals.
• Net exports: Exports of goods and services minus imports.

Importance of GDP:

• Measure of economic growth: GDP growth is a key indicator of a country’s economic strength and progress.
• Gauge of economic well-being: GDP per capita (GDP divided by population) is an estimate of a country’s average standard of living.
• Policy tool: GDP is used to inform policy decisions, such as monetary policy and fiscal policy.
• Comparison: GDP allows for comparisons between countries and regions.
• Economic stability: GDP stability is important for economic growth and stability.

Key Points:

• GDP is a measure of a country’s total output of goods and services.
• It is the sum of spending, saving, investment, and government purchases.
• GDP growth is a key indicator of economic growth.
• GDP per capita is an estimate of a country’s average standard of living.
• GDP is used as a policy tool and for comparison purposes.