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Economics explained


Economic growth

Gross domestic product

Gross domestic product

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Macroeconomics studies the economy as a whole. Seen from on high, the production of goods and services is done by businesses or by the government. Businesses produce the bulk of what people consume, but the government provides many goods and services, including public safety, national defence and public goods such as roads and bridges.

Gross domestic product

Gross domestic product, or GDP, is a statistic that calculates the value of all goods and services produced in a given country in a given period of time.

The components of GDP are as follows:

Consumption expenditure (C)

This is the amount of output that consumers want to consume.

Investment expenditure (I)

This is the amount of output that firms plan to buy as investment goods, such as new factories and equipment, as well as any inventory changes that firms plan to make.

Government expenditure (G)

This is how much output the government wants to buy for things such as building schools or ensuring an adequate supply of paper for paperwork.

Net exports (x-m)

This is the difference between the value of exports of goods and services and the value of imports of goods and services.

Therefore, GDP is calculated using the formula: GDP: C + l + G + (X-M)

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