GDP-Gross Domestic Product

GDP-Gross Domestic Product

GDP or Domestic Product is the measure of economic activity within the geographic confines of a country, within a particular period of time, often a year (Bondarenko, 2017). Gross Domestic Product is generally used to measure the size of an economy, and when divided by the population of a country, it becomes Gross Domestic Product per capita, which is the average of economic activity in a country, and thus in a form comparable to other countries.

It is the market value of all final goods and services produced within a country in a given period of time, typically a year. GDP is often used as an indicator of the standard of living and economic health of a country. It is one of the primary measures of national economic performance, along with gross national product (GNP) and net national product (NNP).

One of the reasons that the Gross Domestic Product is often presented or referred to in per capita terms is because of the underlying notion that in economy’s output would be directly related to the number of hands in the economy.

However, advances in capital intensive forms of production have relegated such a concept to history. In the present state of technological dependent means of production, the output depends not on the strength or expertise of the human hand holding the tool, but the capacity of the machine working the process. Small economies such Taiwan and South Korea have e1nerged as economic engines despite having small populations.

Due to the inability of GDP to adequately measure standards of living, economists now 1neasure growth with other indicators and indexes, such as the Human Development Index.

The GDP in essence a statistical measure. It stands alone in time without any regard for the past socio economic trajectory of a country. Where some countries are today rich because others are poor, where some may have suffered an anarchic past, and social and political turmoil because of which the economic productivity of the country may have been affected, the GDP does not cater to any of these influencing variables. Thus for the purposes of inter country comparison, it is largely irrelevant in contemporary econon1ics.

Gross Domestic Product is often also called the nominal Gross Domestic Product, which means that the values of the goods that have gone into accounting for the final value have not been adjusted for inflation. On the other hand, real Gross Domestic Product is the term used to refer to the fact that the values of the goods taken into account while calculating GDP have accounted for inflation.

This process is usually carried out by assigning a base year, for example if we want to calculate the gross domestic product of a country based on the year 2000 we will use the values of the respective goods and services as they were in 2000, so if a kilo of wheat was worth 100 rupees in 2 0 00, we will keep the value of a kilo of wheat as 100 rupees throughout the calculation, this is done so that we may focus on changes in the final value made due to changes in the quantity of goods and services in the country and not the inflation affected prices. While this is a useful tool to evaluate changes in real growth. domestic product, it is often misused by successive ยท particularly in developing countries.

Critics have often accused successive governments of changing the base year used in making gross domestic product calculations for example picking years pursuant to floods so that the excessively high prices, and reduced outputs during flood years are set as base. This results in artificially inflated gross domestic product values.

Furthermore, the gross domestic product does not take into account the depreciation of the assets of a country, or the income of the diaspora, while it does take into account the income of the foreign expats living in the country, the indicator that does take these into account is the Gross National Income.

Gross Domestic Product led policy making has also been criticized as misleading governments to hail what is beneficial for the top 1% as what is beneficial for the whole country (Dipietro & Anoruo, 2006).

How GDP is measured?

There are three main ways to measure GDP: the expenditure approach, the production approach, and the income approach.

The expenditure approach measures GDP by adding up total spending on final goods and services. This includes consumer spending on things like food, housing, and medical care, as well as business investment in things like machinery and equipment, and government spending on things like roads, schools, and defense.

The production approach measures GDP by adding up the value of all goods and services produced within a country. This includes the value of goods and services produced by businesses, as well as those produced by individuals and governments.

The income approach measures GDP by adding up the total income earned by households and businesses within a country. This includes wages and salaries, profits, and rent, as well as other types of income such as interest and dividends.

All three approaches should theoretically give the same result, but they can sometimes produce slightly different estimates due to the different ways they measure economic activity.

Leave a Comment

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