At the end of
the last session, we closed saying we would look into the GDP of a country. Let
us continue with the GDP of a country with some details.
The GDP of a
country for a year can be calculated following a simple formula:
Annual GDP = C +
I + G + (X-M). Let us expand the
C stands for
consumption. I for Investment; G for
Government Spending and the last one stands for Net exports of the
country. Let us go a little deeper into
each one of the four.
Let us begin
means using a product or service for necessity.
I am consuming, for example, some electricity, using a system etc to
type this message. All activities involve consumption of something or some
service. In our routine living, we
depend on too many things, both durable and non-durable without which not even
a single day might pass with ease and comfort.
Durable goods are those that last longer, for some time. Television sets
which have become now a vital component of household, beds, books are some of
the examples; food and drink are good examples of non-durable goods. The service of a physician, for which we pay
almost every month and the service of servants which has become equally
important for a household where especially both the husband and the wife are employees,
cost every family some percentage of their income.
All the expenses
required for all the people of a nation for all the durable and non-durable
goods in addition to the multifarious services come under the category
‘Consumption’. It is reported that
spending on these by the people is increasing continuously which they call
consumerism. Entire marketing banks on
this ‘feverish’ consumerism which in fact is flamed into necessity through
fascinating and exciting advertisements.
It keeps indeed the money in circulation, impacting national economy.
It is a big
subject of great importance for economy of a family and of a nation. Simply, a country needs money to survive as
much as a family does. In fact, based on
economic soundness of a country, it is categorized as a developed, or under –
developed or developing country. And
based on the income of a family, to put a complex matter simply, a family is
classed as a middle-class, or a lower or a higher middle class, so on. First of
all, let us see what investment means and implies.
Putting in your
money- generally investment is closely and popularly related to money only—to
buy some asset, some property which will either generate money for you or will
appreciate, that is , will become worthy of more money than you have put
in. It is the predominant meaning of the
The major idea
behind investment is getting more money in future. Deposit in a bank will bring more money based
on the money deposited. The asset you
have acquired with your money will also bring more money to you, if you sell it
after some time. In short, investment
focuses on future benefit. For the purpose of understanding GDP, this much of
information is adequate.