Question

The gross domestic product (GDP) or gross domestic income (GDI), a basic measure of an economy's economic performance, is the market value of all final goods and services made within the borders of a nation in a year. briefly describe why it’s so important.

Answer 1

GDP (Gross Domestic Product), also known as GDI (Gross Domestic Income) is a measure of the output generated in an economy and is believed to be one of the most accepted indicators of the growth of an economy. Since, the GDP computation methodology is almost globally consistent, it also provides for benchmarking economies against another to gauge size and growth of the economy.

It is used by various groups of individuals such as economists, researchers, central bank of a nation, etc. One of the major uses of GDP is by the Central Bank of a nation in order to ensure GDP growth is continued while controlling level of inflation within the economy. A quarter on quarter GDP analysis helps gauging the situation in the economy in order to take required steps for ensuring financial and fiscal stability.

Computation of GDP is taken as a sum of the Consumption, Investments and Government Expenditure in an economy along with the Net Exports generated from the economy. Consumption, which is the first, component of GDP is the most important indicator, since it helps understanding people's sentiment within the nation and helps economists and government gauge consumer's confidence in the growth of the economy via their spending habits. Since, GDP is computed as a summation of these different expenditures, it helps track the Private and Public investments made within the economy in order to benchmark current government's performance with the past. It also helps in taking government expenditure decisions.