3. Definition :-
The total market value of all final goods and services
produced during a given time period within a nation’s
domestic borders.
4. Components of GDP
GDP =
Consumption (C) + Investment (I) + Government
Spending +(Exports -Imports) or NET EXPORTS
5. (C) = Consumption
Represents all purchases of goods and services made by households
(65-70%)
(I) = Investment
Costs of building factories / homes / regular business expenses /
increase or decrease in business inventories
Government Spending
Expenses on things like national defence, operational
expenses.
(Exports - Imports
Goods and services that are produced within out borders but sold in other countries.
Money flows into our economy, exports add to our GDP Produced in our country and sold
outside our country, money flows out, imports are hence subtracted from GDP
6. Examples of GDP are
•If an Indian company manufactures a pen in India, it is counted under GDP.
•If a British company manufactures biscuits in India, it is counted under GDP.
•If an Indian company manufactures a pen in USA, it comes under the GDP of USA, but
not India.
7. GDP vs GNP
• GDP factors of production located within a country
• GNP factors of production owned by a country’s citizens, regardless of
where the output is produced.
8. The circular flow diagram illustrates the equality of income,
expenditure, and the value of production
9. Changes in Nominal GDP
GDP of a country can change due to fluctuations in price and demand/ The result may influence a country's
progress. If GDP changes due to an increase in the level of production and not prices, then productivity is
said to increase. However, if GDP increases due to an increase in price while production remains constant,
then any increase is a result of inflation, not productivity. Such a change would not be reflected in real
GDP. Alternatively, nominal GDP may change due to a combination of price and production change.
10. Limits of GDP as a Measure
GDP does not cover all aspects of production in an economy, and may also cover up
some factors that may lead to long-term degradation. Production not included in GDP
include household production, which is the cooking, cleaning and maintenance of
homes. Although people tend not to get paid for such tasks, many economists argue
that it is still an occupation that is not only a necessity but also requires substantial
effort. GDP also does not cover aspects such as the environment, personal satisfaction,
happiness and health quality. Many wealthy countries rank quite low in terms of
personal happiness.
11. Features
•It can be treated as a characteristic of any country's development rate .
•It also judges the import export (International Trade) of a country
•It is a criteria for judging a country is under-developed, developing, or
developed.
•In most of the economies like that of India it is considered as an average
income.
•It helps in judging the Quality of human resource of the country.
12. METHODS OF CALCULATING GDP
The first method is based on economic activity (at factor cost), and the second is based on expenditure (at market
prices). Further calculations are made to arrive at nominal GDP(using current market price) and real
GDP (inflation-adjusted). Among the four released numbers, the GDP at factor cost is the most commonly
followed figure and reported in the media. A sample GDP report that indicates the GDP calculation for all four
figures can be accessed.
The factor cost figure is calculated by collecting data for the net change in value for each sector during a
particular time period. The following eight industry sectors are considered in this cost:
1.Agriculture, forestry, and fishing;
2.Mining and quarrying;
3.Manufacturing;
4.Electricity, gas and water supply;
5.Construction;
6.Trade, hotels, transport and communication;
7.Financing, insurance, and business services;
8.Community, social and personal services.
13. Definition of Nominal GDP
Nominal Gross Domestic Product is defined as a GDP measure, expressed in absolute terms.
The raw GDP data, before inflation is called Nominal GDP. It is the aggregate monetary value of
the economic output produced during a particular financial year, within the nation’s border. It
represents the GDP at prevailing prices in the market, i.e. the current market price.
Definition of Real GDP
Real Gross Domestic Product refers to the measure of GDP adjusted according to the general
price level, in a particular financial year. It represents the economic worth of goods and services
produced, after considering inflation or deflation.
While calculating real GDP measurement is done at fixed prices, i.e. at the prices which are
prevalent at some point of time in the past, known as base year price or reference price. It
reflects the economic output at constant prices. Real GDP is considered as a true indicator of
country’s economic growth because it exclusively considers the production and free from price
changes or currency fluctuations
14. BASIS FOR COMPARISON NOMINAL GDP REAL GDP
Meaning The aggregate market value of the economic
output produced in a year within the
boundaries of the country is known as
Nominal GDP.
Real GDP refers to the value of economic
output produced in a given period, adjusted
according to the changes in the general price
level.
What is it? GDP without the effect of inflation. Inflation adjusted GDP
Expressed in Current year prices Base year prices or constant prices.
Value Higher Generally, lower.
Uses Comparison of various quarters of the given
year can be made.
Comparison of two or more financial year can
be done easily.
Economic Growth Cannot be analyzed easily. Good indicator of economic growth.
Comparison Chart
15. The Gross Domestic Product (GDP) in India was worth 2597.49 billion US dollars in 2017. The GDP value of
India represents 4.19 percent of the world economy. GDP in India averaged 545.81 USD Billion from 1960 until
2017, reaching an all time high of 2597.49 USD Billion in 2017 and a record low of 36.54 USD Billion in 1960.