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STUDENTS’ CORNER - 25

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 formula.

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 with consumption.

Consumption 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.

Now with Investment.

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 word investment.

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.

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