Wall street Journal

Gross Domestic Product Formula

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GROSS DOMESTIC PRODUCT FORMULA 2
Gross Domestic Product (GDP) refers to the total value products that are produced by
people of a given country either citizens or foreigners. The main components of Gross Domestic
Product include business Investment, government spending, personal Consumption expenditure
plus Exports minus imports (Dovern 2006). GDP is calculated using this formula
GDP=G+C+I+NX. Where: G is the spending of the government, C spending’s of the consumers,
Country’s investment and NX is the net exports which are arrived at Export Minus Imports
Lowenstein brings in the opinions of Ehsan Masood and Diane Coyle to debate the topic
further. Masood argues that happiness and life expectancy should be considered when measuring
Gross Domestic Product (GDP). However, Coyle contends that it was never meant to measure
social welfare, but simply the things produced by a country.
Both authors point out the fact that GDP was developed during the years of the World
War II in the mid-20 th century and Great Depression when measuring expanding economies was
becoming increasingly important. After world war II, the economy had been significantly
affected, and it had decreased at a very high rate (Anderson 2017). The war affected the product
production, distribution, investments, consumption and which are the main boosters of an
economy. Masood would seem to argue that GDP should measure not only wealth, but
happiness, education, and healthcare as well. GDP of a country is calculated by the National
Statistic agency which is required to follow the international set standard of calculating it. Coyle
says that GDP is fine for measuring wealth for now, but should be revised in the near future to
make room for our evolving economy. The GDP has a significant impact on the personal
finance, job growth, and investment. Most investor while investing in a given country they
always put GDP into considerations as it displays the direction into which the country is heading.

GROSS DOMESTIC PRODUCT FORMULA 3
It directs the investors on how to adjust their asset allocation depending on how well the country
is doing. Also, GDP affects the jobs in a given country.

Growth in GDP results to more employment opportunities are created, this improves the
living standards of a particular country. GDP distribution determines the quality of life of the
citizen in a given country. Increase in GDP is may be as a result of expansion in output due to
increase in industrialization (United States 2006). Although Production increases the output, it
also pollutes the environment which is a major factor that determines the quality of life. GDP
represents the country’s performance and it also displays the living standard of the citizens.
Many investors, either foreign or local always consider as they draft their portfolio. GDP
calculation method should be maintained at very realistic state to avoid misinterpretation.

GROSS DOMESTIC PRODUCT FORMULA 4

References

Dovern, J. (2006). Predicting GDP components: Do leading indicators increase predictability?
Kiel: Kiel Inst. for the World Economy.
In Anderson, H. M. (2017). Patterns of economic change by state and area: Income, employment,
& gross domestic product.
United States. (2006). Gross domestic product by state estimation methodology. Washington,
D.C.: United States Dept. of Commerce, Bureau of Economic Analysis.