The gross domestic product refers the volume that a country produces in a year. As humans, we have insatiable wants. This means that no matter how much we have we will always want to consume more. From an economic standpoint, having a growing GDP is a good thing and our human nature is the reason why the economy continues to grow. On the other hand, we only have so many resources so this greedy nature of ours has to be balanced the supply of our economy.

Characteristics of the GDP

  1. The gross benefit from a countries output (production)
  2. Anything produced by a country or territory even if it is outside of their geographic border.

Components the GDP

  • Consumption

    From the economic theory that was talked about in the intro, we have unlimited wants when it comes to consumption. That is why consumption is one of the largest components of the GDP. From a macroeconomic standpoint, increased consumption is good for an economy and can spark growth.

  • Investment

    The investment portion of this represents the amount of new assets a company invests in. When there is a growing economy there will be more investing in new assets. Some examples are new factories, new mining, or new technology facilities.

  • Government Spending

    Government spending is necessary to keep an economy running. The government can actually produce goods that will increase the GDP. Some example would be roads, infrastructure, or defense spending. I don’t want you to get confused about the effect of taxes on an economy which is a different subject.

Trading and the GDP

Every country imports and exports products to another country. Like businesses countries also specialize in manufacturing products or doing certain services. To illustrate Japan is the world leader in auto manufacturing with the Toyota Production System, Germany is one of the top steel producers and the United States has some of the top tech companies. This means that it is beneficial for countries to trade goods instead of being a jack of all trades.

  • Imports

    There are some countries like the United States that are service based. The United states imports a lot of goods that are manufactured outside the U.S. which gets subtracted from the GDP.

  • Exports

    On the other hand, there are countries that are manufacturing based like China that export more goods then they bring in which increases their GDP.

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