Nuts and Bolts of GDP (Gross Domestic product)

For this term I have to admit, it is not easy as it looks like. 

Let’s try to find out the basics behind the complexity of this term. For that, we start with the very basic term “Domestic”. When we say Gross domestic product of a country, we directly refer to the domestic behavior/health/output of that country excluding all monetary relation with foreign countries except money earned through export.
Till now it is clear that whatever we are going to deal with, are taking place within the boundaries of the country.

In common terms, GDP basically signifies the health of a country or specifically financial health of a country. There are various methods through which GDP is calculated— Product approach, expenditure approach, and investment approach.  Whatever approach you take, result comes the same. India uses expenditure approach.
Remember, we are trying to find out economic health of a country which depends on various factors such as—  consumption/spending power of people, government expenditure, investment made by private or public sector organizations( non Government), exports made by the country etc.

Whatever way you take, money spend by someone will always go into someone else pocket. It’s either this way or that way the final output remains the same. We can consider all the factors as either expenditure made by each one of them or investment made by each one of them or we can take directly the product value for which expenditure/investment are made. Factors explained above are self explanatory but we’ll have a quick look on each one of them.

---: Consumption refers to personal expenditures pertaining to food, households, medical expenses, rent, etc made by common men. 

---: Government spending stands for the total government expenditures on final goods and services which include investment expenditure by the government purchase of weapons for the military, and salaries of public servants etc. 

---: Investment by public/private organization stands for business investment as capital which includes construction of a new mine, purchase of machinery and equipment for a factory, purchase of software, expenditure on new houses, buying goods and services but investments on financial products is not included. 

Finally exports refers the difference between total export made and total import made. It may be positive or negative and directly affects the GDP of the country.

To calculate the GDP, we add up all the expenditure and compare the final value with the last year GDP and we come to know whether health is in good condition or bad. If the total expenditure is increased that means the power to spend/purchase of people/government is increased and overall it’s a good sign.

(-->>In one line: GDP shows the power of people/government of a country to purchase something, to produce something, to invest on something, to expend more or in other terms it’s a measure of a country’s overall economic output.