Definition of GDP (Gross Domestic Product)

This time we will discuss the meaning of GDP and its functions, components and also some examples of gross domestic product. Without going to length, we just look at the material below:

Table of contents :

Understanding GDP

GDP function

  1. Domestic Economy (national borders)
  2. The concept of the flow cycle (circulair flow concept)
  3. Total value added (value added)

GDP component

  1. Consumption
  2. Investments
  3. Government Expenditure
  4. Net Exports or Net Exports

GDP example

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Understanding GDP

Understanding GDP


Gross Domestic Product (GDP) is the market value of all goods and services produced by a country in a certain period. GDP is a method for calculating national income.


In the international language, Gross Domestic Product (GDP) is also called Gross Domestic Product (GDP).


According to experts, GDP can also be interpreted as the amount of production of goods or services that have been produced by a production unit in an area at a certain time.


Then GDP can be used as a measuring tool for a country’s economic growth.


According to Sadono (2010: 34)


Gross Domestic Product (GDP) is the total value of all goods and services produced in the region within a certain period of time. GDP calculates the production output of an economy regardless of who owns the production factors.


According to Prasetyo (2011: 28)


Gross Domestic Product (GDP) is all goods and services produced or produced by all citizens in a territory of the country concerned within a certain period.


GDP function

As an indicator for measuring economic growth, gross domestic product (GDP) has several functions as follows:


  1. Domestic Economy (national borders)

GDP has a function to measure the extent to which economic policies implemented by the government and stimulate domestic economic activity. The boundary for calculating this GDP is the State.


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  1. The concept of the flow cycle (circulair flow concept)

In this case the GDP calculation is calculated based on the flow cycle concept, which includes the value of the product produced in a certain period.


This calculation does not include calculations for the previous period. Using the concept of flow in calculating GDP allows one to compare the total output this year with the previous year.


  1. Total value added (value added)

GDP is calculated on the basis of the added value generated by all production activities in the economy.


In this case, an increase in GDP reflects an increase in remuneration for the production factors used in the production process.


GDP component

GDP or Gross Domestic Product has 4 components, which can also be used as a formula for calculating GDP itself, these components are:


  1. Consumption

Calculate the consumption of individuals and households for several types of goods such as:


Service is consumption for services. For example (doctor services)

Non-Durable Goods, namely goods that are consumed immediately and are used up. For example (clothing, food and drink, etc …)

Durable Goods are goods that do not spoil quickly with a relatively long lifespan or at least more than 3 years. For example (vehicles, electronics, etc …)

  1. Investments

Investment calculates the amount of purchases of goods that will be used to produce goods and services in the future.


Purchases of goods which are investments, namely purchases of equipment, buildings, and supplies.


  1. Government Expenditure

Government spending takes into account all expenditure incurred by local and central government to purchase goods and services.


For example, to pay civil servant salaries. However, government spending does not include the provision of assistance to the community because these expenditures do not produce goods or services.


  1. Net Exports or Net Exports

Net exports take into account the difference between purchases of locally produced goods by foreign nationals (exports) and purchases of foreign goods made by local citizens (imports).


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And here’s the formula for calculating GDP or Gross Domestic Product:


PDB = C + I + G (XM)


Information :

GDP = Gross Domestic Product


C = Consumption


I = Investment


G = Government consumption


X = Export


M = Import


GDP example

If a country has national income as in the table below:example of pdbThen calculate the GDP of that country!



PDB = C + I + G (XM)


GDP = 90,000,000 + 75,000,000 + 300,000,000 + (50,000,000 – 35,000,000)


GDP = 465,000,000 + 15,000,000


GDP = 480,000,000


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Thus the material on this occasion which discusses the meaning of GDP and its functions, components and also some examples of gross domestic product. Hopefully this is useful for all of you.

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