1. GDP

2. Introduction
Microeconomics is the study of how individual
households and firms make decisions and how they
interact with one another in markets.
Macroeconomics is the study of the economy as a whole.
Its goal is to explain the economic changes that affect
many households, firms, and markets at once.

3. Definitions‘ For GDP
GDP is equal to the total expenditures for all final goods
and services produced within the country in a year.
GDP is equal to the sum of the value added at every
stage of production (the intermediate stages) by all the
industries within a country, plus taxes less subsidies on
products, in the period.

4. Definitions‘ For GDP
GDP is equal to the sum of the income generated by
production in the country in the period—that is,
compensation of employees, taxes on production and
imports less subsidies, and gross operating surplus (or
profits).

5. Some Important Points
“Gross" means that depreciation of capital stock is not
subtracted out of GDP. If net investment (which is
gross investment minus depreciation) is substituted for
gross investment in the equation above, then the
formula for NET DOMESTIC PRODUCT is obtained.
Consumption and investment in this equation are
expenditure on final goods and services.

6. Some Important Points
It doesn’t Matter whether production is done by
domestic companies or foreign companies but
production has to be done within countries territory
only.

7. Calculating GDP
Commonly the Expenditure Method is used for measuring and
quantifying GDP
Formula:
GDP = C + I + G+(X-M)
OR
GDP = consumption + gross investment
+ government spending
+ (exports – imports)

8. Diagrammatic Representation
Consumption
Gross Investment
Government
Spending
(Export - Import)
GDP

9. Components of GDP
GDP = C + I + G + (X-M)
WHERE:
C = Consumption
I = Investment
G = Government Expense
X = Export
I = Import

10. Components of GDP
C : consumption Includes :: Personal expenditures mainly
consists of food, households, medical expenses, rent, etc. For
example, if you live in rental home then renovation spending
would be measured as Consumption.

11. Components of GDP
I : investments by business or households in capital.
Example, If you spend money to renovate your hotel so that
occupancy rates increase, that is private investment. Includes:
Construction of a new mine, Purchase of machinery or
equipment for factory, Purchase of software, Expenditure on
new houses, Buying goods and services.
NOTE:: Investments on financial products like insurance,
mutual fund is not included in Investments.

12. Components of GDP
Total government expenditures on final goods and
services Includes :: Investment expenditure by the
government. Purchase of weapons for the military, Salaries of
public servants. Example: if a government agency is
converting the hotel into an office for civil servants the
renovation spending would be measured as part of public
sector spending (G).

13. Components of GDP
X:Gross Exports Includes :: All goods and services
produced for overseas consumption. Example, If a domestic
producer is paid to make the software for a foreign hotel, the
payment would be counted in gross export.
M:Gross imports Includes :: Any goods or services
imported for consumption Example, If the renovation of hotel
involves the purchase of a electronics from abroad, that spending
would be counted in gross imports.

14. Measurement
GDP is measured by national statistical agency.
In India-Ministry of statistics and programmed implementation.
In Russia-federal service of state statistics
In US- bureau of economic analysis.

15. Comparing GDP Across Time
GDP can grow due to:
1) Economy producing more
2) Prices having risen

16. Calculating GDP and Real GDP in
a Simple Economy

17. Nominal GDP
Nominal GDP, is the value of all final output
produced in an economy during a given year,
calculated using the prices current in the year
which the output is produced.

18. Keeping it Real
Comparing output over time is best done
with rreeaall oouuttppuutt which is nominal output
adjusted for inflation.
Real GDP is the value of the final goods and
services produced calculated using the prices
of some base year.

19. Nominal Vs. Real
NNoommiinnaall GGDDPP is GDP calculated at existing
prices.
RReeaall GGDDPP is nominal GDP adjusted for
inflation.
RReeaall GGDDPP is important to society because it
measures what is really produced.

20. Real vs. Nominal GDP

21. Shortcomings of GDP as a Measure
of National Economic Well-being
Production that is excluded
Household production
Illegal production
The underground economy
Treatment of leisure time
Human cost and benefits
GDP gives us a ballpark idea of how much we produce, not
necessarily how well off we are.

22. Why GDP is Important?
The gross domestic product (GDP) is one the primary
indicators used to gauge the health of a country's economy.
It represents the total dollar value of all goods and services
produced over a specific time period - you can think of it
as the size of the economy. Usually, GDP is expressed as a
comparison to the previous quarter or year. For example, if
the year-to-year GDP is up 3%, this is thought to mean
that the economy has grown by 3% over the last year.

23. Why GDP is Important?
As one can imagine, economic production and growth,
what GDP represents, has a large impact on nearly
everyone within that economy. For example, when the
economy is healthy, you will typically see low
unemployment and wage increases as businesses demand
labor to meet the growing economy.

24. World’s largest Economies-2011

25. THANK -YOU