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# COMPONETNS OF GDP

Gross domestic product (GDP) refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living

GDP was first developed by Simon Kuznets for a US Congress report in 1934.

GDP can be determined in three ways: the product (or output) approach, the income approach, and the expenditure approach.

 Approaches of determining the GDP Product approach Expenditure approach Income approach sums the outputs of every class of enterprise to arrive at the total. works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. works on the principle that the incomes of the productive factors must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes.

Production approach

The production approach is also called as Net Product or Value added method. This method consists of three stages:

- Estimating the Gross Value of domestic Output in various economic activities;

- Determining the intermediate consumption, i.e., the cost of material, supplies and services used to produce final goods or services; and finally

- Deducting intermediate consumption from Gross Value to obtain the Net Value of Domestic Output.

Income approach

Another way of measuring GDP is to measure total income. If GDP is calculated this way it is sometimes called Gross Domestic Income. The US "National Income and Expenditure Accounts" divide incomes into five categories:

1. Wages, salaries, and supplementary labour income

2. Corporate profits

3. Interest and miscellaneous investment income

4. Farmers’ income

5. Income from non-farm unincorporated businesses

These five income components sum to net domestic income at factor cost.

Expenditure approach

In economics, most things produced are produced for sale, and sold. Therefore, measuring the total expenditure of money used to buy things is a way of measuring production.

Components of GDP under expenditure approach:

- Consumption consists of private (household final consumption expenditure) in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services. Examples include food, rent, jewelry, gasoline, and medical expenses but does not include the purchase of new housing

- Investment includes business investment in equipments (examples: construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory; spending by households (not government) on new houses is also included in Investment).

- Government spending is the sum of government expenditures on final goods and services.

- Exports represents gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added.

- Imports represents gross imports.

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