Gross Domestic Product (GDP): It is the total market value of all the final goods and services produced
within the territorial boundary of a country, using domestic resources, during a given period of time,
usually one year. Gross National Income (GNU) at Market Prices = GDP at market prices + taxes less
subsidies on production and imports (Net receivable from abroad) + Compensation of Employees (Net
receivable from abroad) +property income (Net receivable from abroad)
Gross National Product (GNP) is equal to GDP (+) total capital gains from overseas investment (-)
income earned by foreign national domestically
GNP = GDP + NR (Net income from assets abroad (Net Income Receipts)
GDP Computation
. According to the National Income Accounting, there are three ways to compute GDP:
1. Expenditure wise: Calculating the total expenditure of all the entities.
2. Income Wise : Calculating the total incomes received by factors of production — land, labour, capital
and entrepreneur.
3. Product Wise : Calculating the total production.
Expenditure Method: As per this method, GDP = consumption + Gross investment + Government
spending + - (Exports-Imports). GDP = C+I+G+ (X-M).
Consumption: This includes personal expenditures pertaining to food, households, medical expenses,
rent, etc. Gross Investment: Business investment as capital which includes construction of a new mine,
purchase of machinery and equipment for a factory, purchase of software, expenditure on new houses,
buying goods and services but investments on financial products is not included as it falls under savings.
Government spending : It is sum of government expenditure on final goods and services. It includes
salaries of public servants, purchase of weapons for the military, and any investment expenditure by a
government. It does not include any transfer payments, such as social security or unemployment
benefits.
Exports: This includes all goods and services produced for overseas consumption.
Imports: This includes any goods or services imported for consumption and it should be deducted to
prevent from calculating foreign supply as domestic supply.
Income Approach: As per this method, GDP is the sum of the following major components: (i)
Compensation of employees (ii) Property income (iii) Production taxes and depreciation on capital.
Compensation of Employees : It represents wages, salaries, and other employee supplements.
Property Income: It constitutes corporate profits, proprietor's incomes, interests, and rents.
Product Approach: As per this method, GDP is the value of final goods produced in the economy.
Real GDP or GDP at constant price: It is the value of today's output at some base year. Real GDP is
calculated by tracking the volume or quantity of production after removing the influence of changing
prices or inflation. It reflects the real growth.
Nominal GDP or GDP at current prices: represents the total money value of final goods and services
produced in a given year, where the values are expressed in terms of the market prices of eduh year.
Simply it is the value of today's output at today's price.
GDP at market prices measures the value of output at market prices after adjusting for the effect of
indirect taxes and subsidies on the prices. Market price is the economic price for which a good or service is
offered in the market place.
GDP at Factor Cost measures the value of output in terms of the price of factors used in its production.
Factors of production are land, labour, capital and entrepreneur they get remunerations in the form of
rent, wages, salaries, interest and profits are respectively.
GDP at factor cost = GDP at market prices — (indirect taxes — subsidies).
UTILITY OF GDP CONCEPTS
1. GDP is an 'aggregate' measure. it does not indicate any thing about how the GDP is distributed
among the population of the country. Per capita income, another derivative of GDP, also does not
indicate the pattern of income distribution. Thus, a country may have high GDP but much skewed
distribution of income. Such inequality in income distribution often leads to social tensions.
2. Like the inequality of income distribution among population, there could be regional disparity in GDP
with a few developed states contributing the most to the country's GDP and a majority of less
developed state economies contributing a meager.
3. Higher GDP does not necessarily imply higher welfare. Welfare is a wider concept which
encompasses development in all aspects of the society, e.g., health, education, sanitation, etc. India
has over time grown from a low GDP nation to high GDP nation, yet its social development indicators
are not commensurately favourable. Therefore, interpretation of GDP should always be
supplemented by_ some kind of Human Development Index (HDI) as developed by the.World Bank.
4. GDP does not reflect the total income of a country if the country is an export-oriented
=
economy like one of those South-East Asian economies. Gross National Product (GNP) is a more
accurate measure in this context, as it factors in earnings from the external sector.
5. Concept like GDP does not throw light on how much of the population is financially excluded or
included. Lower level of financial inclusion is today a global malady and therefore GDP measures
should be evaluated accordingly.
6. One of the newest concepts in GDP today is the 'green' GDP. A country may be achieving high GDP
but at the cost of its environmental degradation. Environmental issues in growth are quite pertinent
and sensitive matters today. Statisticians all over the world are busy with developing models which
can measure 'green' GDP.
within the territorial boundary of a country, using domestic resources, during a given period of time,
usually one year. Gross National Income (GNU) at Market Prices = GDP at market prices + taxes less
subsidies on production and imports (Net receivable from abroad) + Compensation of Employees (Net
receivable from abroad) +property income (Net receivable from abroad)
Gross National Product (GNP) is equal to GDP (+) total capital gains from overseas investment (-)
income earned by foreign national domestically
GNP = GDP + NR (Net income from assets abroad (Net Income Receipts)
GDP Computation
. According to the National Income Accounting, there are three ways to compute GDP:
1. Expenditure wise: Calculating the total expenditure of all the entities.
2. Income Wise : Calculating the total incomes received by factors of production — land, labour, capital
and entrepreneur.
3. Product Wise : Calculating the total production.
Expenditure Method: As per this method, GDP = consumption + Gross investment + Government
spending + - (Exports-Imports). GDP = C+I+G+ (X-M).
Consumption: This includes personal expenditures pertaining to food, households, medical expenses,
rent, etc. Gross Investment: Business investment as capital which includes construction of a new mine,
purchase of machinery and equipment for a factory, purchase of software, expenditure on new houses,
buying goods and services but investments on financial products is not included as it falls under savings.
Government spending : It is sum of government expenditure on final goods and services. It includes
salaries of public servants, purchase of weapons for the military, and any investment expenditure by a
government. It does not include any transfer payments, such as social security or unemployment
benefits.
Exports: This includes all goods and services produced for overseas consumption.
Imports: This includes any goods or services imported for consumption and it should be deducted to
prevent from calculating foreign supply as domestic supply.
Income Approach: As per this method, GDP is the sum of the following major components: (i)
Compensation of employees (ii) Property income (iii) Production taxes and depreciation on capital.
Compensation of Employees : It represents wages, salaries, and other employee supplements.
Property Income: It constitutes corporate profits, proprietor's incomes, interests, and rents.
Product Approach: As per this method, GDP is the value of final goods produced in the economy.
Real GDP or GDP at constant price: It is the value of today's output at some base year. Real GDP is
calculated by tracking the volume or quantity of production after removing the influence of changing
prices or inflation. It reflects the real growth.
Nominal GDP or GDP at current prices: represents the total money value of final goods and services
produced in a given year, where the values are expressed in terms of the market prices of eduh year.
Simply it is the value of today's output at today's price.
GDP at market prices measures the value of output at market prices after adjusting for the effect of
indirect taxes and subsidies on the prices. Market price is the economic price for which a good or service is
offered in the market place.
GDP at Factor Cost measures the value of output in terms of the price of factors used in its production.
Factors of production are land, labour, capital and entrepreneur they get remunerations in the form of
rent, wages, salaries, interest and profits are respectively.
GDP at factor cost = GDP at market prices — (indirect taxes — subsidies).
UTILITY OF GDP CONCEPTS
1. GDP is an 'aggregate' measure. it does not indicate any thing about how the GDP is distributed
among the population of the country. Per capita income, another derivative of GDP, also does not
indicate the pattern of income distribution. Thus, a country may have high GDP but much skewed
distribution of income. Such inequality in income distribution often leads to social tensions.
2. Like the inequality of income distribution among population, there could be regional disparity in GDP
with a few developed states contributing the most to the country's GDP and a majority of less
developed state economies contributing a meager.
3. Higher GDP does not necessarily imply higher welfare. Welfare is a wider concept which
encompasses development in all aspects of the society, e.g., health, education, sanitation, etc. India
has over time grown from a low GDP nation to high GDP nation, yet its social development indicators
are not commensurately favourable. Therefore, interpretation of GDP should always be
supplemented by_ some kind of Human Development Index (HDI) as developed by the.World Bank.
4. GDP does not reflect the total income of a country if the country is an export-oriented
=
economy like one of those South-East Asian economies. Gross National Product (GNP) is a more
accurate measure in this context, as it factors in earnings from the external sector.
5. Concept like GDP does not throw light on how much of the population is financially excluded or
included. Lower level of financial inclusion is today a global malady and therefore GDP measures
should be evaluated accordingly.
6. One of the newest concepts in GDP today is the 'green' GDP. A country may be achieving high GDP
but at the cost of its environmental degradation. Environmental issues in growth are quite pertinent
and sensitive matters today. Statisticians all over the world are busy with developing models which
can measure 'green' GDP.
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