GDP is the national income of a country. To calculate it, you must break the country's economy down into constituent parts.
- Step 1: Calculate the sum of consumer spending, investment, government purchases, and net exports for the country of interest, and you have the GDP. And you thought economics was the dismal science!
- FACT: The United States' GDP was $14.26 trillion in 2009, less than the previous year due to the international economic recession.
- Step 2: Compute the value of the country's net exports -- the difference between spending on domestic goods and spending on imported items by domestic residents of the country. Said another way, net exports are the difference between exports and imports.
- Step 3: Determine the amount of government spending by summing all expenditures by the government on goods and services. Examples could include military equipment and salaries and government employees.
- Step 4: Calculate total investment -- the sum of expenditures on capital equipment, inventories, and buildings. For example, this category would include manufacturing equipment, products that have not yet sold, and housing.
- Step 5: Compute consumer spending -- the total expenditures in the country of interest on durable goods, nondurable goods, and services. Examples include food, clothing and health care.