GDP is calculated based on what factor?

Gross Domestic Product (GDP) measures the economic performance of a country and is calculated primarily based on the amount of expenditure incurred by those who purchase goods and services within that economy. This approach is commonly known as the expenditure approach to calculating GDP, which encompasses total spending on consumer goods and services, business investments, government spending, and net exports (exports minus imports).

The rationale behind this method is that all production in the economy is ultimately consumed or invested, thus, measuring how much is spent provides a comprehensive view of overall economic activity. When individuals and businesses purchase goods and services, it reflects demand in the economy, which drives production, employment, and income generation.

Moreover, while the other factors listed may contribute to understanding aspects of the economy, they do not directly encompass the comprehensive calculation of GDP like expenditure does. For instance, while the total number of goods produced relates to output measures, it does not account for the value of those goods in terms of sales. Similarly, total profits are a subset of the overall economy and not a complete measure of economic activity, and income earned relates more to the income approach to GDP, which is another valid method of calculation but not the primary one in this context.

Thus, focusing on the amount of