GDP (Gross Domestic Product)

Values of all the goods and services produced within the country and also termed as, Measure of market value of all the final goods and service produced in a period. GDP value comes on the quarterly basis and on yearly basis GDP is described for whole year.

Statistician say, when a country’s GDP is high it means that the country is increasing the amount of production that is taking place in the economy and the citizens have a higher income and hence are spending more.

 

GDP is abbreviated in three parts as,

1. Gross 2. Domestic 3. Product

Gross

In the production of goods there are several factors such as-:

1. Labour 2. Machinery 3. Land 4. Building

All the above factors excluded in the pricing of goods then the final cost that remains out of this is called as Gross.

Domestic

Value of all the goods and services produced within the country. Income from abroad is excluded.

Product

Product is the goods and services itself.

Why we need GDP

GDP estimates are commonly used to determine the economic performance of a whole country or region and to make international comparisons. Therefore using a GDP per capita basis is arguably more useful when comparing differences in living standards between various nations.

How to calculate GDP of a country

GDP can be determined in three ways -:

Production approach

  • Estimate the gross value of domestic output out of the many various economic activities.
  • Determines the intermediate consumption i.e. the cost of material, supplies and services used to produce final goods or services.

Income approach

  • The sum of primary incomes distributed by resident producer units.
  • Hire – wages for Labour, interest for capital, rent for land and profits for entrepreneurship.

Expenditure accounts

  • Wages, salaries and supplementary Labour income.
  • Corporate profits.
  • Interest and miscellaneous investment income
  • Farmer’s incomes
  • Income from non-farm unincorporated business

GDP is sum of Consumption(c), Investment (I), Government spending (G) and Net Exports (X M).

Y = C + I + G + [X – M]

C – Consumption

  • Examples include food, rent, jewelry, gasoline and medical expenses.

I – Investment

  • Includes, for instance, business investment in equipment

G – Government spending

  • Is the sum of government expenditures on final goods and services.
  • It includes salaries of public servants, purchases of weapons for the military and any investment expenditure by a government.

X – Exports

  • Represents gross exports.

M – Imports

  • Represents gross imports

Imports are subtracted since imported goods will be included in terms of G, I or C and must be deducted to avoid counting foreign supply as domestic.

 

Leave a Reply

Your email address will not be published. Required fields are marked *