Gross Domestic Product

GDP is the integral part of the economy of the country. The full form of the GDP is Gross Domestic Product. It is the main instrument to measure the country’s economic growth.

The GDP include the all income and the values of the country starting from your own individual income to the income of the major companies of the country. So the GDP is the term directly related to us and it’s utmost important to know about the GDP.

Gross Domestic Product (GDP) – GDP is the market value of all final goods and services which produced in country. Also the goods and services produced within the time period also matters. GDP is usually calculated on any annual basis. It includes all of private and public consumption, government outlay’s,

investment and exports and imports that occur within a defined territory.” “Gross” means that GDP measures production regardless of the various uses to which that production can be produced. . It represents the total rupees value of all goods and services produced over a specific time period.

For example, if the year-to-year GDP increased by 3%, it means that the economy has grown by 3% over the last year.     GDP may represent economic production or economic growth; it has deep impact on nearly everyone within that economy within that economy. For example, when the economy is healthy, it implies low unemployment, wages increase as businesses demand labor to meet the growing economy. Further, a significant change (rise or fall) in GDP usually has a remarkable effect on the stock market. A bad economy usually means lower profits for companies, which in turn means lower stock prices.

A negative GDP growth is one of the factors that economies use to determine whether an economy is in recession. Now we discuss the GDP measuring methods.

1) Production Approach

It is the market value of all final goods and services calculated during one year. The production approach is also called Net Product or Value added method. This method consist of three stages 1) estimating the gross value of domestic output out of the many various economic activities. 2) Determining the intermediate consumption, i.e the cost of material, supplies and services used to produce the final goods or services and 3) deducting intermediate consumption ( depreciation) from Gross Value to obtain the Net value of Domestic output.

2) Income Approach 

It is total of incomes of individuals living in a country during one year. Another way of measuring GDP is to measure total income and it is referred to as Gross Domestic Income (GDI) or GDP. GDI should provide the same amount as the expenditure method and by definition GDI = GDP.

The income to all factors of production during the process of production are aggregated together to arrive at the national income of the country. This is known as national income at factor cost.

3) Expenditure Method 

In expenditure  method the sum of all expenditures incurred by individuals during one year. In economics, most things produced for sale and sold. This is expenditure method of calculating GDP. Income can be spent either on consumer goods or investment goods, i.e consumption expenditure or investment expenditure.

The private expenditure on consumer and investment goods, we add government expenditure. i.e government’s purchases of goods and services. Lastly, we add net foreign investment. So the importance of the Entrepreneurs to develop the GDP is Crucial.