In order to measure the size of a country’s economy accurately, one of the factors to look at is its Gross Domestic Product (GDP). In definition, it represents the overall value of everything that a nation produces in which citizens, local companies, and even foreign-owned companies are the main contributors.
In calculating GDP, you have to look at the four major components that directly determine the country’s annual economic output: personal consumption, government spending, net exports, and business investment.
Personal consumption expenditure, as the name suggests, measures consumer spending of an entire country’s population. Basically, this component tells you how people spend money on the available goods and services in the country.
Government spending, on the other hand, represents the country’s government expenditures, investment, transfer of payments and consumption.
Business Investments are the purchases that companies within the boundaries of a country make in order to generate and produce new consumer goods.
Lastly, the net exports of goods and services measure how a country’s performance on imports and exports make or unmake their GDP. Exports directly add to a nation’s GDP while imports subtract. The United States, for instance, holds the world’s largest GDP in terms of nominal GDP. However, U.S. is also known for importing more products than it exports, resulting in a trade deficit.
In 2017 alone, the United States suffered from the results of how their imports subtracted $2.81 trillion from their annual calculations while only adding a total of $2.19 trillion from their total exports that year. Such deficit then led to the international trade subtracting a massive amount of $620 billion from the United States’ GDP.
The world’s emerging countries have recorded the most impressive GDP growth rates in the past couple of decades. As a result, the likes of China, Brazil, India, Indonesia, and Egypt, among others, have received considerable attention from international companies, investors, and even offshore investment firms.