• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
Gross domestic product
(Redirected fromGross Domestic Product
 
)Jump to:navigation, search
"GDP" redirects here. For other uses, seeGDP (disambiguation).
This article
needs additionalcitationsforverification.
Please help improve this article  by addingreliable references.Unsourced material may be challenged  and removed. 
(February 2009)
Countries by 2008 GDP (nominal) per capita (IMF, October 2008 estimate)CIA World Factbook 2007 figures of totalnominalGDP (top) compared toPPP-adjusted GDP (bottom)GDP (PPP) per capitaThe
gross domestic product
(
GDP
) or 
gross domestic income
(
GDI
), a basic measureof an economy's economic performance, is the market value of all final goods andservices made within the borders of a nation in a year.
[1]
GDP can be defined in threeways, all of which are conceptually identical. First, it is equal to the total expenditures for allfinal goodsand services produced within the country in a stipulated period of time(usually a 365-dayyear 
 
). Second, it is equal to the sum of the value added at every stage of production (the intermediate stages) by all the industries within a country, plus taxesless subsidies on products, in the period. Third, it is equal to the sum of the incomegenerated by production in the country in the period—that is,compensation of employees, taxes on production and importslesssubsidies, andgross operating surplus  (or profits).
[2]
 
[3]
The most common approach to measuring and quantifying GDP is the expendituremethod:
GDP = consumption+ gross investment + government spending + ( exports − imports
 
 )
, or,GDP = C + I + G + (X − M)."Gross" means that depreciationof capital stock is
not 
subtracted out of GDP. If netinvestment (which is gross investment minus depreciation) is substituted for grossinvestment in the equation above, then the formula for net domestic productis obtained.Consumption and investment in this equation are expenditure onfinal goodsand services.The exports-minus-imports part of the equation (often called
net exports
) adjusts this bysubtracting the part of this expenditure not produced domestically (the imports), andadding back in domestic area (the exports).Economists (sinceKeynes) have preferred to split the general consumption term into two parts; private consumption, and public sector (or government) spending. Two advantagesof dividing total consumption this way in theoreticalmacroeconomicsare:
•
Private consumption
is a central concern of welfare economics. The privateinvestment and trade portions of the economy are ultimately directed (inmainstream economic models) to increases in long-term private consumption.
 
•
If separated from endogenousprivate consumption,
government consumption
can be treated as exogenous,
[
citation needed 
 
]
so that different government spendinglevels can be considered within a meaningful macroeconomic framework.
o
Each of the variables
C (Consumption)
,
I (Investment)
,
G (Government spending)
and
X − M (Net Exports)
(where
GDP
=
C
+
I
+
G
+
(X − M)
as above)(Note: *
GDP
is sometimes also referred to as
Y
in reference to a GDP graph)
•
C (Consumption)
is
private
consumption in the economy. This includes most personal expenditures of householdssuch as food, rent, medical expenses and soon but does not include new housing.
•
I (Investment)
is defined as investments by  businessor households in capital. Examples of investment by a business include construction of a newmine, purchase of software, or purchase of machinery and equipment for a factory.Spending by households (not government) on new houses is also included inInvestment. In contrast to its colloquial meaning, 'Investment' in GDP does notmean purchases of financial products. Buying financial products is classed as'saving', as opposed to
investment
. The distinction is (in theory) clear: if money isconverted into goods or services, it
is
investment; but, if you buy a bondor ashare of stock , thistransfer paymentis excluded from the GDP sum. That is  because the stocks and bonds affect the financial capital which in turn affects the production and sales which in turn affects the investments. So stocks and bondsindirectly affect the GDP. Although such purchases would be called
investments
innormal speech, from the total-economy point of view, this is simply swapping of deeds,and not part of realproduction or the GDP formula.
•
G (Government spending)
is the sum of government expenditures onfinal goods  and services. It includes salaries of  public servants, purchase of weapons for themilitary, and any investment expenditure by a government. It does not include anytransfer payments, such as social securityor  unemployment benefits.
•
X (Exports)
is gross exports. GDP captures the amount a country produces,including goods and services produced for other nations' consumption, thereforeexports are added.
•
M (Imports)
is gross imports. Imports are subtracted since imported goods will be included in the terms
G
,
I
, or 
C
, and must be deducted to avoid countingforeignsupplyas domestic.
[edit] Examples of GDP component variables
Examples of 
C
,
I
,
G
, and
NX
(net exports): If you spend money to renovate your hotel sothat occupancy rates increase, that is private investment, but if you buy shares in aconsortium to do the same thing it issaving.The former is included when measuring GDP (in
I
), the latter is not. However, when the consortium conducted its ownexpenditure on renovation, that expenditure would be included in GDP.For example, if a hotel is a private home then renovation spending would be measured as
C
onsumption, but if a government agency is converting the hotel into an office for civilservants the renovation spending would be measured as part of public sector spending(
G
).
 
If the renovation involves the purchase of achandelier  from abroad, that spending would
also
be counted as an increase in imports, so that
NX
would fall and the total GDP isaffected by the purchase. (This highlights the fact that GDP is intended to measuredomestic production rather than total consumption or spending. Spending is really a convenient means of estimating production.)If a domestic producer is paid to make the chandelier for a foreign hotel, the situationwould be reversed, and the payment would be counted in
NX
(positively, as an export).Again, GDP is attempting to measure production through the means of expenditure; if thechandelier produced had been bought domestically it would have been included in theGDP figures (in
C
or 
I
) when purchased by a consumer or a business, but because it wasexported it is necessary to 'correct' the amount consumed domestically to give the amount produced domestically. (As in Gross Domestic
Product
.)
[edit] Types of GDP and GDP growth
GDP real growth rates for 20081.
Current GDP
is GDP expressed in the current prices of the period beingmeasured2.
Nominal GDP growth
is GDP growth in nominal prices (unadjusted for pricechanges).3.
Real GDP growth
is GDP growth adjusted for price changes.Calculating the real GDP growth allows economists to determine if production increasedor decreased, regardless of changes in the purchasing power of the currency.
[edit] GDP income account
Another way of measuring GDP is to measure the total income payable in the GDPincome accounts. In this situation, Gross Domestic Income (GDI) is sometimes usedrather than Gross Domestic Product. This should provide the same figure as theexpenditure method described above. (By definition, GDI=GDP. In practice, however,measurement errors will make the two figures slightly off when reported by nationalstatistical agencies.)The formula for GDP measured using the income approach, called GDP(I), is:
GDP = Compensation of employees +Gross operating surplus+ Gross mixed  income+ Taxes less subsidies on production and imports
 
•
Compensation of employees
(COE) measures the total remuneration toemployees for work done. It includes wages and salaries, as well as employer contributions tosocial securityand other such programs.
•
Gross operating surplus
(GOS) is the surplus due to owners of incorporated businesses. Often called profits, although only a subset of total costs aresubtracted from gross output to calculate GOS.
•
Gross mixed income
(GMI) is the same measure as GOS, but for unincorporated businesses. This often includes most small businesses.
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...