Question

What are the four main categories of GDP ?

Answer 1

GDP refers to the money value of all goods and services that are produced within the country during specified period of time. GDP is calculated on annual basis as well as on quaterly basis. Higher GDP reflects increase in national output, higher economic growth, more employment and better standard of living. GDP act as a tool for Investors, Businesses, government for investment and strategic decision making.

Four components of GDP are -

1 Household Consumption - The household consumption is the largest component in GDP contribution. Household consumption mainly accounts higher than 50 % in overall GDP. Household consumption falls under following categories: durable goods, non-durable goods, and services.

2 Investment - It includes investment in the economy which result in asset creation. Machinery, equipment, Buildings, land and household purchase of Houses are all included in Investment component. Financial and capital market transactions are not part of investments.

3 Government Spending - Government spending refers to the expenditure of government on goods and services. It includes salary and wages of government employees, public and defence spending, infrastructure spending all comes under Government spending. Here Transfer payments are not included in Government spending, they are included in Consumption when these payments are spend in the economy.

4 Net exports - Net exports refer to the difference between country Exports less imports. The Exports are added to the GDP and imports are deducted from GDP.

GDP by Expenditure Method = Household consumption + Gross Business Investment + Government Spending + Net Exports (Export - Import)