Factors of Production, GDP

 

What is GDP?

The letters GDP are flung around often by the Prime Minister, Reserve Bank, Journalist and many others.  They stand for Gross Domestic Product which represents the overall market value of all the Goods and Services a country produces. In a way it’s a price tag on a country’s output and it measures the size of the economy. The price is determined with the following formula:

C + G + I + NX = GDP      where,

C = Nations Private consumption or Consumer Spending;

G = Sum of Government Spending;

I = Sum of Businesses’ Capital Spending;

NX= Nations total Net Exports ( i.e. Exports - Imports)

GDP is an important number because it indicates whether a country’s economy is growing and expanding or shrinking and contracting. It also gives important information about how the introduction of new products and services or the improvements of existing ones affect the man. This data helps to plan future product development and improvements. It also helps a country to stack its economy up against others in the world and determine whether it’s growing at a comparable rate. 

Well it’s not a perfect science. GDP can also be used to get an estimate of a country’s standard of living. The idea is that as a country’s goods and services become more valuable globally and as the GDP rises so does the standard of living for the citizens of the country since they profit from creating and providing the products and services. For these reasons GDP is one of the most common indicators used to gauge a country’s Economic Health.