GDP is the market value of all final goods and services produced in a country in a given time period. By using the expenditure approach, it can measures GDP by summing consumption, investment, goverment expenditure and net exports.
GDP = C + I + G + (X-M)
where C = Consumption, I = Investment, G = Goverment Spending, X = Exports, M = Imports.
From the formula above, the consumption (C) are influenced by a few factors. They are
- The real interest rate; When the interest rate increases, consumption will drops.
- Disposable income; This is the money left to spend after deducting taxes plus transfer payments. This will affect the consumption when you earn more, you will spend more.
- Wealth; People who are born with a silver spoon. When you have more moeny, consumption will increase.
- Expected future income; When you obtain a degree, your expected income will defintely raise and you tend to spend more. On the other hand, if you are expecting a pay drop, comsumption will decrease.
However, some activities are not included in the GDP like, doing freelance job, giving tuition, increase in the amount of DIY. Similarly, the underground economy does not include in the GDP as well. Activities like illegal and undeclared transactions, drugs, illegal gambling. Therefore, GDP statistics may not be a good gauge of a country's standard of living.
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2 comments:
Yo.. Was it suppose to be your assignment???
haha...Thanks le..no la.. where got pple post assignment one.. But its part of my research... =)
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