Students of economics know quite well that their discipline is full of formulas and statistical analysis. Without an understanding of the statistics involved in the subject, they find themselves lost. That is why the best students of economics especially those who are doing their dissertations and higher level study are also good statisticians.
One of the most important statistics in economics is the calculation of gross domestic product or GDP. What are the ways of calculating this formula?
1. If you are going to calculate the GDP using the expenditure method then you should start with a calculation of consumer spending which is the inclusion of consumer goods like food, clothing, tools and furniture. Then add all the investments made which is the money spent by businessmen to either acquire new goods and services or to run the existing business efficiently. Then add to this the excess of exports over imports, and in this case it is important to remember that imports are subtracted since GDP is a measure of products produced domestically. Then finally add government spending.
2. You could choose to calculate GDP using the income method. In this method you add employee compensation, rent, interest, proprietor’s income, corporate profits, indirect business tax, depreciation and net foreign factor income, and that will give you the GDP.
3. GDP is only useful if you draw comparisons. Economics and statistics is all about trying to find trends and patterns and trying to forecast the future. That is why students should learn to make comparisons between nominal GDP and real GDP. They should also compare the GDP of the current year with those of previous years and analyze what the numbers could be in the future.
It is also important to look beyond mere numbers and statistics and find reasons and factors that have led to the GDP going up or down in a certain year or over a period of time. It is this statistical analysis that will give economics students’ extensive knowledge and allow them to master their discipline.