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Answer Posted / nitesh
Review the formula. The basic formula for calculating GDP is: y = c + i + e + g, where y = GDP, c = consumer spending, i = industry investment, e = excess of exports over imports and g = government spending.
2
Define "c" or consumer spending. This includes all spending done by consumers.
3
Define "i" or industry investments. Investment refers to the capital expenditures by growing industries and firms, not the amount of money individuals are putting into investment accounts . These expenditures include equipment and production facilities.
4
Define "e" or the difference between the value of exports and imports. Exports are goods shipped abroad; imports are goods shipped into the U.S. To calculate, exports are positive and imports are negative; if exports are more than imports the result is an addition to GDP.
5
Define "g" or government purchases. Tax money is used to make these purchases which represent government spending.
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