Gross Domestic Product (Gdp) Of A Nation

1100 words - 4 pages

GDP
Gross domestic product (GDP) of a nation is comprised of four primary components. These components; consumption, investment, government spending and net exports are the measure of the monetary value of all the finished goods and services produced within a country's borders in over a given period of time. This can be broken down in any time frame but is normally used quarterly and annually. The GDP can be calculated as; GDP (Y) = consumption (C) + investment (I) + government spending (G) + net exports (NX) or Y=C+I+G+NX. The key word here is finished goods and not all goods.
Consumption
Household consumption, one of the four components of calculating the GDP of a nation has a broad range of items included in it. With the exception of the cost of buying a used house, most all durable and nondurable goods are measured within this. Mankiw (2012) described consumption as spending by households on goods and services, with the exception of purchases of new housing (p.497). The money a family spends on goods and services include everything from haircuts to education. Durable goods would be vehicles for transportation and all of the items that one buys to furnish a home. Items big and small regardless of brand or cost are factored in this component. If one was to buy and new set of appliances for a kitchen and a broom to sweep the floor, they are both used in this calculation. This is now adding to the consumption figures in this calculation. If one was to save this money for a while longer it would make the overall GDP lower than if the items were purchased. Education is often thought of as an investment in ones future but it is considered consumption by means of an intangible service for calculating GDP.
Investment
Investment from the point of the GDP includes items that will be used for future to produce more goods and services. When a company such as Amazon builds a fulfillment center and stocks it full of miscellaneous products to sell to its consumers it is all considered investment spending. It is not until the items are sold that they become converted to consumption spending and will then be considered negative inventory investment for Amazon. Mankiw (2012) stated that the GDP measures expenditures on goods and services where the word investment means the purchase of goods used to produce other goods (p.498).
It is very important that companies invest in the future for its business. The economy could be doing better if some companies were not so profit oriented and more growth conscious. Amazon has been investing a great deal into the future of its business. For the shareholders of Amazon this action should have an affect the value of the shares. Since Amazon is investing so much back into its growth it has not made any real money and the shares do not earn much of any dividends. For most stocks this would be seen as a negative for its shareholders. For Amazon though, its stock continues to increase in value even without showing a profit....

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