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What is GDP?

Civics | 7-14 yrs | Interactive

Full form of GDP

GDP or Gross Domestic Product is a measure used in Economics for measuring a territory’s economy size.

GDP is the best measure to calculate a country’s economy. It includes everything produced by all the people and companies in a country.

Definition of GDP

GDP is the total value of all products manufactured and goods provided within that territory during a specific period, say a year.
Simply put, Gross Domestic Product is the total goods produced by a country in a specific period of time. GDP measures the health of a country. A country with a high GDP is a good economy while a country with a low GDP is poor economy.

How to find the GDP of a nation?

To find the GDP of a nation one needs to add up all consumer spending (C), investments (I), all government spending minus taxes (G) and the value of exports minus imports (X-M).

Thus, the following equation:

GDP= C+I+G+ (X—M)

GDP can be measured by three methods:

  1. Output method: It measures the market value of all goods and services produced within the borders of the country. It is known as GDP at constant price or real GDP. The formula is: GDP as per output method= Real GDP – Taxes + subsidies
  2. Expenditure method: It measures the total expenditure incurred by all entities on goods and services produced within the boundaries of a country. The above mentioned formula is used to calculate GDP by expenditure method. GDP= C+I+G+(X-M)
  3. Income method: It measures the total income earned by the factors of production, which are labour and capital within the boundaries of a country. The formula for this is GDP by income method= GDP at factor cost +Taxes – Subsidies

What is GDP per capita?

This is the total income of a country, divided by the number of people living in that country. GDP per capita shows how much money people make on an average by working in that country.

Nominal GDP is different than the real GDP. When GDP is calculated at current market prices, it is known as nominal GDP. Nominal GDP includes changes in prices which is different than the real GDP. These changes in prices could be due to inflation and price rise or price fluctuations.

Example: If price rises by 3% (everything costs 3% more) and the nominal GDP grows by 5%; the real GDP growth is only increased by 2%.
Nominal GDP is a raw measurement that leaves price increases in the estimate. Real GDP takes out the effect of inflation. It shows how much the prices have changed since the base year.

What is GDP growth rate?

This is the percent increase in an economy’s output from quarter to quarter. The growth rate tells you exactly how fast a country’s economy is growing.

In India contributions to GDP are divided into 3 main categories- agriculture and allied services, industry and service sector. India measures GDP as market prices and the base year for computation is 2017-18.

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