1. What Is GDP?

Gross Domestic Product (GDP) is the total monetary value of all finished goods and services produced within a country's borders in a specific time period. It serves as a comprehensive scorecard of a country's economic health.

2. The Expenditure Approach Formula

The expenditure approach calculates GDP by summing all expenditures in the economy:

Where:

• \( C \) — Consumption: Spending by households on goods and services
• \( I \) — Investment: Business spending on capital goods and inventory
• \( G \) — Government Spending: Government expenditures on goods and services
• \( X \) — Exports: Goods and services sold to other countries
• \( M \) — Imports: Goods and services purchased from other countries

Explanation: This approach measures GDP from the demand side, capturing all final expenditures in the economy during a given period.

3. Components of GDP

Consumption (C): The largest component, including durable goods, non-durable goods, and services purchased by households.

Investment (I): Business fixed investment, residential construction, and changes in business inventories.

Government Spending (G): All government consumption and investment expenditures, excluding transfer payments.

Net Exports (X-M): The difference between exports and imports, representing the trade balance.

4. Using the Calculator

Tips: Enter all values in the same currency unit. Ensure all inputs are non-negative numbers. The calculator will sum consumption, investment, government spending, and net exports to calculate GDP.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between nominal and real GDP?
A: Nominal GDP uses current prices, while real GDP adjusts for inflation using constant prices from a base year.

Q2: Why are imports subtracted in the GDP calculation?
A: Imports are subtracted because they represent spending on foreign-produced goods and services, which are not part of domestic production.

Q3: What is not included in GDP?
A: Intermediate goods, used goods, illegal activities, transfer payments, and non-market activities are excluded from GDP calculations.

Q4: How often is GDP calculated?
A: Most countries calculate GDP quarterly and annually, with revisions as more complete data becomes available.

Q5: What are the limitations of GDP as an economic indicator?
A: GDP doesn't account for income distribution, environmental costs, non-market production, or overall quality of life and well-being.