What is the formula for Gross Domestic Product (GDP) and what does it indicate for a business?

• A. GDP = C + I + G + NX; indicates overall economy size and market potential.
• B. GDP = Revenue − Costs; indicates profitability.
• C. GDP = Total Assets; indicates liquidity.
• D. GDP = Price × Quantity; indicates production level.

Answer: (A)

GDP measures the size of an economy and signals market potential by summing spending on final goods and services within a country. The formula is GDP = C + I + G + NX, where C is consumption by households, I is investment by businesses, G is government spending, and NX is net exports (exports minus imports). For a business, GDP provides a sense of overall economic activity and growth, which helps assess market potential, likely demand, and the environment in which the company operates. It’s not a measure of a single company’s profitability or cash flow, and it doesn’t directly reflect a firm’s assets or pricing. The other concepts shown align with profit (revenue minus costs), liquidity (total assets), or a firm’s own production/revenue calculation, not the broad macroeconomic measure of GDP.