The three components that make up GDP are agriculture, industry, and services. For example, if there are three items in agriculture, two in industry and 10 in services. Now imagine, they all sold for Rs 10 each. Now add them all up and one would get Rs 150..
That would be the GDP for the country. Of course, in the real world, there are millions of goods and services. Another way of measuring GDP is through the following equation: GDP = C + I + G + NX where `C' is personal consumption and includes the expenditure of households on different items such as food and medical expenses. `I' refers to investments in machinery, building new houses, buildings etc.
It should be remembered that investment does not refer to investing in shares or bonds. `G' is government spending and includes money spent on paying government employees, as also investment expenditure by the government such as on roads.
However, it does not include transfer payments such as retrials and subsidies. `NX' means net exports and is simply exports less imports. Therefore, if imports are more than exports, then `NX' would be negative and vice-versa.
GDP is the most important macroeconomic number but what one should really look out for is the real GDP growth number. `Real', as opposed to nominal, means that it is adjusted for inflation. The GDP growth number tells us about the strength of the economy or how well it is performing
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