identify factors that cause change in the components of GDPS

identify factors that cause change in the components of GDP.

Solution

GDP stands for gross domestic product. It measures the gross value of all products (goods and services) produced in an economy during a time period typically a year.

The measurement of GDP involves computation and summation of the following items -

1) Consumption expenditure: Private consumption spending on final goods and services.

2) Investment expenditure: public and private investment such as purchase of assets.

3) Government expenditure: Spending on public utilties etc by government

4) Net export : Export - Import.

Any change in the above component results in change (increase or decrease) in GDP.

Specifically examples of some of the factors that change these components include: if consumers\' confidence or investors\' confidence increases then they will consue or invest more respectively. This will increase Consumption or investment and hence increaseing the GDP. Similarly any reduction in either or both will reduce it.

If domestic currency gets depreciated then exports of an economy increases then GDP will also increases . Decline in Import resulted becaus eof depreciation of domestic currency will increase the GDP respectively. Similarly the appreciation will decrease the export and increase the import reducing the GDP.

When government reduces the fiscal spending due to inflation as a fiscal measure then also GDP will reduce and vice versa will happen when recssion exist.