What is gross domestic product?

GDP, is defined as the total value of all goods and services produced within that territory during a given year. GDP is designed to measure the market value of production that flows through the economy. or Gross domestic product is the market value of all officially recognized goods and services produced within a country in a specific period of time , and this time could be of one year.

What is gross domestic product?

"Gross" means that GDP measures production regardless of the various uses to which that production can be put. Production can be used for immediate consumption, for investment in new fixed assets or inventories, or for replacing depreciated fixed assets. "Domestic" means that GDP measures production that takes place within the country's borders.

Difference b/w GDP and GNP

GDP is not to confused with GNP The difference is that GDP defines its scope according to location, while GNP(gross national income) defines its scope according to ownership. In a global context world GNP and world GDP are therefore, equivalent terms. GDP is product produced within a country's borders; GNP is product produced by enterprises owned by a country's citizens. The two would be the same if all of the productive enterprises in a country were owned by its own citizens, and those citizens did not own productive enterprises in any other countries. GDP=GNP-FI Where FI=foreign income

Three Approaches to Measure GDP

There are three approaches through which we could measure GDP , these are 1. Expenditures Approach 2. Income approach (NY = National Income) 3. Value added Approach/ production approach

APPROACHES OF GDP:
1.Expenditure approach:
A method for calculating GDP that totals consumption, investment, government spending and net exports. The formula for its calculation is often expressed as follow: GDP = C + G + I + NX Where C=consumption I=investment G=Govt. expenses NX=net export Where NX=Exports(X)-Imports(M) So GDP=C+G+I+(X-M)

INCOME APPROACH
" sum total of incomes of individuals living in a country during 1 year ." GDP=W+I+R+P+SA where W : wages I : interests R : rent P: profits SA : statistical adjustments (corporate income taxes, dividends, undistributed corporate profits)

VALUE ADDED METHOD:

" Market value of all final goods and services calculated during 1 year . This is one of the methods for calculating GNP. The money value of final goods and services produced at current prices during a year is taken into account. This is one of the ways to avoid double counting. The difference between the value of material outputs and input at each stage of production is called the value added. GNP by Value Added = Gross Value added + Net Income Overseas.

Limitations of GDP
The GDP fails to measure or express changes in a nation's: Income distribution Quality of life Unpaid labour Intangible valuables (e.g. feeling secure) Real Savings Standard of Living Uneven inflationary price changes (e.g. a housing bubble) Transactions on the Black-market