What is GDP (Gross Domestic Product)
GDP (Gross Domestic Product) || At present time GDP (Gross Domestic Product) is used to measure the economy of any country, even on the basis of production, GDP is used instead of prices. GDP is used to clearly display the country's economic condition.
GDP (Gross Domestic Product)
You will see the following content in this article.
What is GDP (Gross Domestic Product)? / Definition of GDP.
Included in Gross Domestic Product.
Why measure economy by GDP?
The importance of Base Year in GDP?
Types of GDP (Gross Domestic Products).
Measurement of GDP / How is GDP Calculated.
What is GDP (Gross Domestic Product) / Definition of GDP.
Gross domestic product (GDP) is the primary and standard measure of the value of various goods and services produced within a country's boundaries over a certain period of time (In a Year).
GDP is calculated by different countries based on their currency. GDP includes all Private and Public consumption, Government outlay, Private inventions, payment-creation costs, investment and foreign balance of trade within the border of country. It only covers production by a citizen or non-citizen residing in the country, whereas domestic production made abroad by the citizens of the country is excluded.
Gross - Overall / Total.
Domestic - Production Within boundary of country.
Product - Goods and services produced.
Included in Gross Domestic Product.
The boundaries of the country have been determined in the GDP which is as follows : -
Mainland area of the country.
Production of goods and services within the prescribed border of the country whether it is by a citizen and non-citizen of a country.
Territorial sea (exclusive economic zone).
(200 nautical miles) along with mainland boundary all the activities under exclusive economic zone, it's also part of Gross Domestic Product.
National Embassy of the country located in other Pleases.
All services or activities of GDP, whether located in other countries, are included in the gross domestic product because the embassy is part of the nation.
Flight and Ships of a country.
all the services Provided in flight and ships also part of GDP whether its in Foreign countries or in native country.
So all the production of goods and services part of domestic or we can say it's part of GDP.
Why measure economy by GDP?
GDP based on production or we can say purpose of GDP of any economy to measure production because production measure REAL GROWTH or REAL DEVELOPMENT of any economy, While PRICE is based on inflation and demand of particular article.
Example GDP
Year 2015 : - One Car 🚙 = price 5 lakh.
Year 2019 : - One Car 🚙 = price 7 lakh
so according to example production is same in both year but price is different so "it's not mandatory if price is increasing , production also increasing or we can say development is going on in economy
So we have seen production is reliable source to measure growth of any economy. That's why we measure all the economy by Gross Domestic Product.
The importance of Base Year in GDP?
It's a particular year which we use for comparison or we compare production of that particular year and present year. We use that particular year for base year where no ups and downs or we can say it's stable time for economy.
we use base year to measure real production of a country because production represents real growth of any economy.
Eg. Suppose base year is 2011-12
Year 2011-12 : - 5 car 🚙 = price 25 lakh.
Year 2016-17 : - 5 car 🚙 = price 50 lakh.
So according to example production is zero compare to 2011-12 , because production is same in both year, there is no progress in production, here growth is zero, That's why we use base year to measure real GDP.
Types of GDP (Gross Domestic Products).
1. REAL GDP
2. NOMINAL GDP
Real GDP
When the earning or expenditure of a country is calculated by adjusting inflation at real time prices, it is called real GDP. The inflation is adjusted according to the base year.
In the Real GDP, we measure production according to base year and we compare production of two years, it's not based on market price because market price is variable.
Nominal GDP
When the earning or expenditure of a country is calculated based on the current market prices without adjusting inflation, it is called nominal GDP.
Que. If real GDP measures the real growth of the economy then why do we use nominal
Ans. All the new article or new invention in market which didn't exist earlier, so to measure value of new articles we use nominal way. Nominal GDP good for measurement of current price rate and also tells us demand of particular thing in present time.
Measurement of GDP / How is GDP Calculated.
Nominal Way
it's very common and easy way to measure GDP,
In nominal way we measure GDP in a most accepted currency or a international standards.like dollar.we use nominal way to compare GDP to others countries
Purchasing Power Parity (PPP)
we use GDP according to purchasing power and cost of living in a particular country then we compare it to other countries. actually it good measurement but difficult also because different services and goods in different countries due to their geographical area and culture.
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