Measuring country wealth. There are two ways to measure the wealth of a country.

The nominal per capita gross domestic product (GDP) refers to the value of goods and services produced per person in a country if this value in local currency were to be exchanged into dollars. Suppose, for example, that the per capita GDP of Japan is 3,500,000 yen and the dollar exchanges for 100 yen, so that the per capita GDP is (3,500,000/100)=$35,000. However, that $35,000 will not buy as much in Japanfood and housing are much more expensive there. Therefore, we introduce the idea of purchase parity adjusted per capita GDP, which reflects what this money can buy in the country. This is typically based on the relative costs of a weighted basket of goods in a country (e.g., 35% of the cost of housing, 40% the cost of food, 10% the cost of clothing, and 15% cost of other items). If it turns out that this measure of cost of living is 30% higher in Japan, the purchase parity adjusted GPD in Japan would then be ($35,000/(130%) = $26,923. (The Gross Domestic Product (GPD) and Gross National Product (GNP) are almost identical figures. The GNP, for example, includes income made by citizens working abroad, and does not include the income of foreigners working in the country. Traditionally, the GNP was more prevalent; today the GPD is more commonly usedin practice, the two measures fall within a few percent of each other.) In general, the nominal per capita GPD is more useful for determining local consumers ability to buy imported goods, the cost of which are determined in large measure by the costs in the home market, while the purchase parity adjusted measure is more useful when products are produced, at local costs, in the country of purchase. For example, the ability of Argentinians to purchase micro computer chips, which are produced mostly in the U.S. and Japan, is better predicted by nominal income, while the ability to purchase toothpaste made by a U.S. firm in a factory in Argentina is better predicted by purchase parity adjusted income. It should be noted that, in some countries, income is quite unevenly distributed so that these average measures may not be very meaningful. In Brazil, for example, there is a very large underclass making significantly less than the national average, and thus, the national figure is not a good indicator of the purchase power of the mass market. Similarly, great regional differences exist within some countries income is much higher in northern Germany than it is in the former East Germany, and income in southern Italy is much lower than in northern Italy. Suppose there are only 100 goods being produced in a country during a particular year. In the next year the same numbers of goods are produced but the statistics show an increase in the GDP of the country in that year. Can GDP of a country increase without increasing the number of goods being produced in that country? If yes, then how? If, No then why?

Nominal GDP can because it is not adjusted for inflation.It only shows the total value of goods produced in the country at current prices. Real GDP, which is adjusted for inflation cannot increase without the number of goods produced increasing.

Yes, because GDP is a value, so typically if prices inflate the GDP will increase even if the actual number of items is static.

This is the situation in most western countries over the past few decades - most of the work done is increasing services and decreasing actual goods, but the GDPs have continued to rise rapidly. Unlike nominal GDP, real GDP can account for changes in the price level, and provide a more accurate figure.

Let's consider an example. Say in 2004, nominal GDP is $200 billion. However, due to an increase in the level of prices from 2000 (the base year) to 2004, real GDP is actually $170 billion. The lower real GDP reflects the price changes while nominal does not

Nominal GDP can because it is not adjusted for inflation.It only shows the total value of goods produced in the country at current prices. Real GDP, which is adjusted for inflation cannot increase without the number of goods produced increasing.

The production approach is also called as Net Product or Value added method. This method consists of three stages: The sum of Gross Value Added in various economic activities is known as GDP at factor cost. GDP at factor cost plus indirect taxes less subsidies on products is GDP at Producer Price. For measuring gross output of domestic product, economic activities (i.e. industries) are classified into various sectors. After classifying economic activities, the gross output of each sector is calculated by any of the following two methods: 1. By multiplying the output of each sector by their respective market price and adding them together and

2. By collecting data on gross sales and inventories from the records of companies and adding them together. Subtracting each sector's intermediate consumption from gross output, we get sectoral Gross Value Added (GVA) at factor cost. We, then add gross value of all sectors to get GDP at factor cost. Adding indirect tax less subsidies in GDP at factor cost, we get GDP at Producer Prices.

Income approach
Another way of measuring GDP is to measure total income. If GDP is calculated this way it is sometimes called Gross Domestic Income (GDI), or GDP(I). GDI should provide the same amount as the expenditure method described above. (By definition, GDI = GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies.)