FULL FORM OF GDP

     

Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is the total market value of all the final goods and services produced within the country during specific time of period. It serves as the primary scorecard for a nation's overall economic health, size, and growth rate. it helps to economists to understand the country financial health and government makes  policy decision on the basis of this data.

Understanding Gross Domestic Product (GDP)

TRADE SURPLUS

Of all the components that make up a country’s GDP, the foreign balance of trade is especially important. The GDP of a country tends to increase when the total value of goods and services that domestic producers export to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy. In this situation a country is said to have a trade surplus.

TRADE DEFICIT

In trade deficit if the amount that domestic consumers spend on foreign products is greater than the total sum of what domestic producers can export to foreign consumers, it is known as trade deficit. In this situation, the GDP of a country tends to decrease.

                                 

WHAT DOES GDP INDICATES

A country’s GDP represents the final market value of all the products and services that a country produces during specific time of period. Other way to measure GDP is as the sum of four factors: consumer spending, government spending, net exports, and total investment.

In the United States, GDP is calculated every three months by the  Bureau of Economic Analysis (BEA). The BEA makes calculation based on price estimates, survey data, and other information collected by other agencies, such as the Census Bureau, Federal Reserve, Department of the Treasury, and Bureau of Labour Statistics.

Types of GDP

There are various types of GDP such as:

• Nominal GDP: The monetary value of a country's goods and services at current market prices without adjustment for inflation. Because nominal GDP reflects changes in both production and price levels, it helps to identify short-term growth trends of the country. 
• Real GDP: It includes inflation-adjusted measure that reflects the value of all goods and services produced by the country in a given year. Real GDP is a better calculation compare to nominal GDP for long-term comparisons since it measures inflation-adjusted economic growth.
• GDP Per Capita: GDP per capita is  a country's total economic output divide by its population . It serves as a standard metric to understand average economic health, productivity, and living standards of the people of the country.
• GDP Growth rate: These rates, indicates as the annual change in GDP as a percentage, indicates how fast a country's GDP is increasing or decreasing. Policymakers use this rate to take fiscal decisions.
• Purchasing Power Parity: Purchasing power parity (PPP) is an economic tool  that compares different countries currencies through a "basket of goods". It indicates how much money is needed to buy the same items in different places, helping people to understand  the real cost of living and compare economic size beyond standard market exchange rates.

GDP Formula

GDP can be calculated via three primary methods. All three methods should yield the same figure when correctly calculated. These three approaches are often termed the expenditure approach, the output (or production) approach, and the income approach.

The Expenditure Approach

The expenditure approach, also known as the spending approach, calculates spending by the different groups that participate in the economy. 

GDP= C+G+I+NX

$\begin{array}{}\end{array}$GDP=C+G+I+NXwhere:C=ConsumptionG=Government spendingI=InvestmentNX=Net exports