Presented by Jovelyn E.

Daclag

Gross Domestic
Product (GDP)
WHAT IS GDP?
GDP
GDP, or Gross Domestic Product, is a measure
of the total value of all goods and services
produced within a country's borders during a
specific time period. It helps assess a country's
economic health and overall performance.
 Foreign Balance of Trade
The trade balance, which is the difference between
exports and imports, plays a crucial role. If a country
exports more than it imports, it has a trade surplus,
contributing to GDP growth. Conversely, if a country
imports more than it exports, it has a trade deficit,
potentially leading to a decrease in GDP.
Types of Gross Domestic
Product
 Nominal Gross Domestic Product
is the total value of all goods and services
produced in a country, measured at current
market prices. It reflects the overall economic
activity without adjusting for inflation.
 Real Gross Domestic Product
is a way of measuring the total value of all
goods and services produced by a country, but
it adjusts for changes in prices over time.
GDP can be calculated in nominal terms or real terms.
Nominal GDP reflects current prices, while real GDP
adjusts for inflation. Real GDP is considered a better
measure for long-term economic performance because it
provides a more accurate picture of actual economic
growth, discounting the impact of price changes over
time.
What is the GDP Formula?
 Expenditure Approach
The expenditure approach is the most
commonly used GDP formula, which is
based on the money spent by various
groups.
GDP = C + I+ G + (X−M)
C = consumption or all private consumer spending within a
country’s economy, including, durable goods, non-durable goods,
and services.
G = total government expenditures, including salaries of
government employees, road construction/repair, public schools,
and military expenditure.
I = sum of a country’s investments spent on capital equipment,
inventories, and housing.
NX (X-M) = net exports or a country’s total exports less total
imports.
Example
Suppose we have the following values for a hypothetical economy in a given time period:
• Consumption (C): $500 billion
• Investment (I): $200 billion
• Government spending (G): $150 billion
• Exports (X): $120 billion
• Imports (M): $80 billion

Now, let's plug these values into the formula:

GDP=500+200+150+(120−80)
GDP=500+200+150 (120−80)
GDP=500+200+150+40GDP=500+200+150+40
GDP=890

So, in this example, the GDP of the economy calculated using the Expenditure Approach is $890 billion.
This represents the total value of goods and services produced in the economy during the specified time
period, taking into account consumption, investment, government spending, and net exports.
 Try it!
Imagine the Philippines during a particular year. In this time period:

Filipino households spent a total of 3 trillion pesos on various goods and services. This includes spending on groceries,
clothing, electronics, and other items that people buy for personal use.

Businesses in the Philippines invested 1 trillion pesos in expanding their operations, building new factories, and
purchasing equipment to improve productivity.

The Philippine government allocated 800 billion pesos for public services, infrastructure projects, education, and
healthcare. This includes expenditures to enhance the overall well-being of the citizens.

Filipino companies successfully exported goods and services worth 500 billion pesos to other countries. These could
include products like electronics, textiles, or services such as business process outsourcing.

However, the Philippines also imported goods and services worth 300 billion pesos, including raw materials,
machinery, and other items from different parts of the world.
Try it!
Now, let's calculate the GDP using the Expenditure Approach:

GDP = C + I + G + (X - M)
GDP = 3 trillion + 1 trillion + 800 billion + (500 billion - 300 billion)
GDP = 5 trillion

So, the GDP of the Philippines for that year, calculated using the
Expenditure Approach, is 5 trillion pesos. This reflects the total economic
activity in the country, considering what people spent, businesses invested,
government spent, and the balance of exports and imports.
 Income Approach
This GDP formula takes the total
income generated by the goods and
services produced.
 GDP = Total National Income + Sales Taxes +
Depreciation + Net Foreign Factor Income
Total National Income – the sum of all wages, rent, interest, and profits.
Sales Taxes – consumer taxes imposed by the government on the sales of
goods and services.
Depreciation – cost allocated to a tangible asset over its useful life.
Net Foreign Factor Income – the difference between the total income that
a country’s citizens and companies generate in foreign countries, versus
the total income foreign citizens and companies generate in the domestic
country.
 GDP= w + i + r + p

w - wages earned from labor

i - interest earned on capital
r - rent earned on land
p - profits earned on entrepreneurial talent
Example
In 2016,$190 million was income earned on
labor. $25 million was earned in interest
payments. $30 million is earned on rents
collected and $15 million earned in profits.
Therefore, Fredonia’s GDP is calculated as
GDP=$190 + $25 + $30 + $15
 Presented by Jovelyn E. Daclag

Thank you very

much!