What is Gross Domestic Product

Every nation has certain economic tools to measure its growth in terms of the size of the nation. One such tool is called the Gross Domestic Product. This is a very broad measure that is used to measure the economy’s volume in terms of output. In general terms gross domestic product is defined as overall market worth of goods and services manufactured in the economy. There are many methods of calculating the gross domestic product of any country.

The expenditure method is one of them; here the sum total of expenditure is taken to be as the Gross Domestic Product. It takes into account the main expenditures like consumption expenses, net exports expenses, investment expenses and federal expenses. Among these consumption expenses are considers to be the huge element, this is evaluated by adding the value of all durable and non durable goods and services.

Investment expenses are nothing but purchases of fixed assets and other assets that are fixed in nature. Net exports are that which is arrived by subtracting imports from exports. Here imports are subtracted because gross domestic product is considers as the yield of the domestic economy. Finally government expenses are those which include expenses made on welfare of people, payouts that are made for unemployment and other government norms that make them pay for it. Hence this is one method of calculating gross domestic product.

The other alternate methods include the product method and the income method. These two methods are also the same as the first one, the latter takes into account all the income that the producers receive and the former evaluates and take into account the market value of all goods and services. Though there are methods to calculate gross domestic product, it is a very complicated and hence it is left to economists to do it.

Gross domestic product is a vital indicator of a nation’s economic health. The growth and the economic production are represented by the GDP of a nation. It has a huge impact on the entire population of the economy. To illustrate this, if the economy is good then the nation will not have problems like unemployment, increase in prices of essential commodities and wage increase. The gross domestic product whether less or more directly affects the stock market. Since an awful economy means lesser profits for the organization, this in turn affects a crash in stock market prices.

When the gross domestic product goes to negative the economists comes to conclusion that the economy is going towards recession. Hence the Gross Domestic Product is definitely a health indicator for any economy. It not only helps in knowing the economic growth of a nation , but also in understanding if there is any unequal wealth distribution in the country. It also helps in comparing a developing country’s economy with that of a developed nation.