Gross Domestic Product

Gross Domestic Product

Gross domestic Product measures the aggregate production of final goods and services taking place within the domestic economy during year. GDP is value of all services produced within the country  plus value of all goods produced within the country.

The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. A measure of the value of the total production in a country, usually in a given year. Gross domestic product is calculated by adding together total consumer spending, total government spending, total business spending, and the value of net exports. GDP is considered one of the leader indicators of the health of a nation’s economy.

GDP growth is considered desirable and represents the fact that businesses are producing and that consumers and the government are buying. It is often used as a way to measure a country’s standard of living.

When the  figure is adjusted for inflation, it is called the real gross domestic product, and it’s generally used to measure the growth of the country’s economy.

The GDP numbers are reported in two forms: current dollar and constant dollar.

1.Current dollar GDP is calculated using today’s dollars and makes comparisons between time periods  difficult because of the effects of inflation.

2.Constant dollar GDP solves this problem by converting the current information into some standard era dollar, such as 1997 dollars. This process factors out the effects of inflation and allows easy comparisons between periods.

If the GDP of the country is rising , the welfare may not rise as a consequence. This is because the raise in GDP may be concentrated in the hands of very few individuals or firms. For the rest, the income may in fact have fallen. In such a case the welfare of the entire country cannot be said to have increased.

Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. The exchanges which take place in the informal sector without the help of money are called barter exchanges. In barter exchanges goods(or services) are directly exchanged against each other.

But since, money is not being used here  , these exchanges are not registered as part of economic activity. In developing countries, where many remote regions are underdeveloped, these  kinds of exchanges do take place, but they are generally not counted in the GDPs of these countries.

Hence GDP calculated in the standard manner may not give us a clear indication of the productive activity and well -being of a country.

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