GDP or Gross domestic product is actually the monetary value of all the services and products which are finished within the borders of a country in a certain period of time. Usually, GDP is determined or calculated on the basis of years but if required, it can also be calculated on the basis of quarters as well. For instance in the US, a GDP estimate is released by the government for each and every quarter. Even a year is included according to the requirements. In the GDP, trade balance (subtraction of imports and addition of exports), paid-in costs of construction, private inventories, investments, government outlays, public and private consumption are included. To put it simply, GDP is an accurate and wide evaluation of the whole economic activity of the nation(PERRY, 2017).

        Usually, it is contrasted with GNP or gross national product as well which evaluate the whole development or production of the citizens of the economy. It includes those who live in a foreign country as well. GDP is considered very important in the context of business because companies can use it as a map for deciding just how to contract or expand their activities and production in the best optimal way. Even investors are watching GDP as it offers a framework with the focus upon decision-making regarding the investment. The inventory and corporate profits data in the report of GDP become a valuable resource of information for equity investor because breakdowns, operating cash flows, and pre-tax profits are displayed by the corporate profits for the economy’s different important sectors.

        Generally, for the determination of GDP, there are three primary ways. With proper measurement, all the methods give the same precise figure. The terms of these three approaches include the income approach, the output approach, and the expenditure approach. GDP on the basis of spending: The spending approach or the expenditure approach is actually the most common way which measures the money that different groups spend and volunteer in the economy. It can be said that consumers invest money in the activities of their businesses such as purchasing machinery. Additionally, money is also spent by governments. GDP notices all these activities. Moreover, some services and goods which are made by an economy are exported goods along with their net exports. The spending on imports and exports are also accounted in the GDP calculation.

        GDP on the basis of production: This approach is more or less like the expenditure approach’s reverse. The production approach measures the economic output’s total value and deducts costs which are related with the intermediate goods and invested in the procedure like those of services and materials. Meanwhile, the approach of production observes backward from the state’s vantage of a completed activity in the context of economy. GDP on the basis of Income: Recognizing the fact that the spending coin’s other side is income and what is spent is the income of someone else, the other approach is something like intermediary among the duo of aforementioned ways-is designed on the basis of national income’s tally. In economy, all the production factors which earn include the profits of an entrepreneur, return on capital, rent on the land, and wages given to workers. The profits of an entrepreneur could serve as an investment in his own company or any other company. All of this is included in the national income and it plays an important role in the implied expenditure or implied productivity.

        Components: This approach actually determines the complete or overall sum of everything that is used in the development of a finished sale or product. For returning this ship’s example, the contribution of the finished ship to the GDP of a nation would be measured by the material’s total costs along with services which were invested in the construction of the ship. This way predicts a completed ship’s relative value that is fixed relative to the materials’ value and services which are involved in the value that is calculated and added.

        The gross domestic product of the country can no doubt be determined using the formula which is: GDP = C + G + I + NX. In this formula, C equals the private consumption, or the spending of consumer in the economy of a nation. Meanwhile, G is the addition of government spending and I equal the sum of all the investment of the country. It involves capital expenditures of business while NX is the overall net exports of the nation, measured as imports subtracted from total exports(CHEN, 2018).

References of Gross Domestic Product (GDP), highlighting the components and methods of calculating GDP.

CHEN, J., 2018. Four Asian Tigers. [Online]
Available at: https://www.investopedia.com/terms/f/four-asian-tigers.asp

PERRY, B., 2017. 4 Key Indicators That Move The Markets. [Online]
Available at: https://www.investopedia.com/articles/fundamental-analysis/10/indicators-that-move-the-market.asp