What is GDP?
GDP means Gross Domestic Product, which is the total market value of all final goods and services produced in a country in a given year.
GDP (Gross Domestic Product) is a measure of a country’s production or income. In simple words, it is the sum of all the incomes of the people living in a particular country. It is the value of a country's overall output of the respected goods and services at market prices. The GDP does not include the net abroad income. For instance, the GDP of US is $15 trillion.
The GDP is one of the simplest & intuitive measures of a country, which tracks its economy and the net imported income. It helps the country to find its economical progress and development. Usually, GDP is expressed as a comparison to the previous quarter or year. It primarily indicates and reflects the health of a country. A country’s recession wholly is dependent on the GDP of the country. GDP is generally shown by representing on a Graph.
The GDP is basically measured as: Y = C + I + E + G.
Where, Y= GDP, C= Consumer Spending, I= Investment made by industry, E= Excess of Exports over Imports, G= Government Spending.
Generally, GDP is determined in three ways, which are similar in all the aspects:
Production Approach: It is the market value of all final goods and services calculated during the 1 year. This approach is also called as a Net Product or Value added method. Symbolically, it is calculated as:
- Net Value Added = Gross Value of output – Value of Intermediate Consumption.
Income Approach: It is the sum total of incomes of individuals living in a country during 1 year. Here, the GDP is calculated as:
- GDP = Compensation of Employees + Gross Operating Surplus + Gross Mixed Income + Taxes Less Subsidies on Production and Imports.
And the total Factor income is expressed as:
- Total factor income = Employee Compensation + Corporate Profits + Proprietor's Income + Rental Income + Net Interest.
Expenditure Approach: These are all expenditure incurred by individuals during 1 year. Here the GDP is expressed as:
- GDP (Y) = Final Consumption Expenditure (FCE) + Net Exports (X – M).