GDP - Gross Domestic Product calculation that shows the monetary measure of the market value of all the final goods and services produced in a period of time. This caluclator allows you to caluclate GDP using the expenditure method and the Income method. The calculator has supporting information and a guide to GDP below the calculator.
2020 Gross Domestic Product (GDP) Results
|Gross Domestic Product (GDP):|
GDP: the Sum of the Value of Goods & Services Produced in any Economy
The term Gross Domestic Product of a country defines a total monetary value of all the goods and services that are produced in a country over a specified period. Gross Domestic Product is commonly rknown by its acronym, GDP. This is generally calculated on a quarterly and annual basis.
Used in the UK since the 1940s GDP is perhaps the most talked about economic concept. It measures the percentage change in the size of a country's economy.
Basis of GDP
GDP includes all private and public consumption, government investments, expenditures, foreign trade (imports and exports). There are various types of GDP measurements:
- Nominal GDP - This is the measurement of the raw data. Nominal GDP evaluated at current market prices. Therefore, it takes inflation or deflation occurred during the current period.
- Real GDP - For Real GDP the output from nominal GDP is adjusted for price changes to transform the money value into an index for quantity of total output.
- GDP growth rate - This is the measure of growing pace of an economy by comparing company's growth quarter to quarter.
- GDP per capita - It provides country's output that accounts for its number of people. It is a good measure of a country's standard of living.
Gross Domestic Product (GDP) Calculator
The GDP calculator created by iCalculator is based on two main techniques to calculate GDP: Using Expenditure and Using Income. These methods and the formulas used in the calculators are explained below:
GDP: Expenditure Method
The GDP expenditure method also known as spending approach, this takes into account the spending by the different groups that participate in an economy. This method uses the following GDP formula:
GDP = C + I + G + NX
- C = Consumer spending - This is the biggest component of GDP of any country's economy. This includes the money spent by people for any goods and services that they use such as utilities, groceries and car wash.
- I = Investment spending - This refers to private investments. Businesses spend money to invest in their business, like to buy basic infrastructure and machinery. This as well is a very important component of GDP since it affects production and employment in an economy.
- G = Government spending - Spending and investments completed by the government fall in this group, for example, when the Public Sector spends money on goods and provisions like, education, social protection and healthcare.
- NX = Net exports - NX is calculated as total exports minus total imports. This can be a positive or negative value. All expenditures by the companies based in the country are included, even if they are foreign entities.
All these activities contribute to the GDP of a country.
GDP: Income Method
Income earned by all the factors of production in an economy is the basis of this measurement of GDP. This includes all interests, corporate profits, wages and rents earned in an economy. The GDP calculator uses the GDP formula below for this method:
GDP = COE + I + R + P + C + T + D +N
- COE = Compensation of Employees - This is the total number of wages paid by the employers in an economy. It includes salaries and all other types of compensation provided to workers.
- I = Interest Income - refers to the total sum of interest income earned in an economy for a period of time.
- R = Rents - is the total amount of income earned by rents is factored in.
- Proprietor's Income - is an excess of revenue over explicit cost of owner operated businesses.
- Corporate profits - is calculated as total corporate sales minus all costs, such as depreciation, interest, taxes, and other expenses.
- I & D = Indirect business taxes and Depreciation - These are two non-income adjustments made to the sum of the categories to arrive at GDP.
- Net factor income - This is net income earned from abroad.
Limitations of GDP
Although widely used, there are some drawbacks and limitations to GDP: Profits earned by overseas companies in a nation are not accounted in GDP. This is a big drawback as the income is remitted back to foreign investors. The various unofficial income sources are also ignored by this measure such as, household production and "under the table employment" which can be significant in some nations. The intermediate expenditure and transactions between businesses are not taken into account, only the final productions and new capital investments are included in the calculations. Overall wellbeing is ignored because GDP concentrates on material output only. So, a high GDP country does not necessarily mean the citizens of the country are content.
GDP is a key tool to guide investors and business in political decision making as it helps policymakers judge if the economy is contracting of expanding. It supports forecasting and taking steps to avoid or reduce the impacts of inflation or recession.
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