Macro-Economics: Methods of Calculating the Gross Domestic Product of a Country

548 Words2 Pages
Introduction The concept. This discussion centers on the gross domestic product (GDP), which is primary indicator for the general health of a national economy. The GDP is expressed with reference to a specific period of time usually a fiscal quarter of a year. As shorthand for the size of country's economy, the GDP represents the value of all goods and services as a total dollar figure ("Investopedia," 2012). Comparing the GDP across quarters or years enables an economist to describe the growth of an economy ("Investopedia," 2012). For example, if year-to-year GDP increases by 4%, the economy is considered to have grown by that percentage. Calculating GDP is a complicated process conducted by economists. In a nutshell, however, the GDP is calculated by summing what has been spent by all the people in a country over the course of a particular period this is termed the expenditure method or by summing the collective earnings of all the people in a country during a specific period this is called the income method ("Investopedia," 2012). Both methods of calculating the GDP are expected to produce the same figure ("Investopedia," 2012). The income approach to calculating the GDP, which is sometimes noted as GDP(I), includes the summation of the total compensation to employees (which would include benefits, bonuses, and the like), the gross profits for companies that are incorporated and companies that are not incorporated, and taxes minus any subsidies ("Investopedia,"

More about Macro-Economics: Methods of Calculating the Gross Domestic Product of a Country

Open Document