What is Gross Domestic Product?
Gross Domestic Product stands as the final value. Of the goods and services which is produced within the geographic boundaries. Of a country during a particular period of time. This value is calculated normally a year. And the GDP growth rate is an important indicator of the economic performance of a country.
Types of Gross Domestic Product (GDP) Calculations
Gross Domestic Product (GDP) can be measured by three methods, namely:
This method measures the monetary. Or market value of all the goods and services. That are produced within the borders of the country. To avoid a distorted measure of GDP. Because of price level changes, GDP at constant prices 0 real GDP is computed. GDP (as per output method) = Real GDP (GDP at constant prices) – Taxes + Subsidies.
The expenditure method. Measures the total expenditure incurred. By all the entities on goods and services within. the domestic boundaries of a country. GDP (as per expenditure method) = C + I + G + (X-IM) C: Consumption expenditure, I: Investment expenditure, G: Government spending, and (X-IM): Exports minus imports, which is, net exports.
The Income method measures the total income. that is earned by the factors of production.which is labor and capital within the domestic boundaries of a country. GDP (as per income method) =GDP at factor cost + Taxes – Subsidies.
Difference Between Gross Domestic Product & Gross National Product
Gross domestic product is different from the gross national product (GNP) which includes all the final goods and services. which are produced by resources owned by that country’s residents. be it located in the country or elsewhere.
How GDP Affects You
GDP affects personal finance, investments, and job growth. Investors on their own end monitor a nation’s growth rate in determining if they should adjust their asset allocation, and compare country growth rates in order to find their best international opportunities. They buy shares of companies that are in rapidly growing countries.
The Fed implements expansionary monetary policy. In order to ward off recession and contractionary monetary policy. In a bid to prevent inflation. The primary tool it uses is the federal funds rate.
Where growth slows or becomes negative. There is a need for you to update your resume. Because low economic growth leads to layoffs and unemployment. When there is slow economic growth, it’s inevitable for many companies to layoff. This delay between economic growth rates as well as the impact on individual workers. Makes unemployment a lagging indicator.
Sourcing for Opportunities During Downturns
The BEA provides breakdowns of GDP data which examines specific sectors as well as products. These details can be used in determining which sectors of the economy are growing as well as which are declining. With this report, you can also determine whether or not you should invest in a particular area.
Problems With GDP
Now the measurement of Gross domestic product hinges on market price. Thus there are many aspects of society including many aspects that are factored into the economic well-being. Which are not included in the GDP numbers.
One of the biggest criticisms of GDP. Is that it does not include the cost of environmental costs. The gross domestic product. Does not measure how environmental costs impact the well-being of society.
Another criticism of GDP is that it does not include unpaid services. This means that it leaves out unpaid child care and volunteer work.
The gross domestic product also does not count the shadow or black economy. This implies that it underestimates economic output in countries. Where many people get their income from illegal activities. As a result, these products are not taxed and do not reflect in the records. And although they can estimate, they cannot correctly measure this output.