GDP full form Is Gross Domestic Product. It is the total value of goods and services produced within a country in a year.
GDP is the measurement statistics of final goods and services means the product and services brought by the end-user.
GDP shows the overall economic health of the country by measuring the total domestic production of a nation. It is mainly measured annually but in some cases, it can also be measured quarterly.
Economics always looks at a growth rate of GDP, to measure the overall economic growth of the country. For instance, if the growth rate of GDP is high then the lifestyle or living standards are also high in a country.
A higher GDP country has higher living standards. Contribution to GDP in India mainly depends on 3 sectors i.e Agriculture and Allied services, Industry, Service sector
How to Calculate GDP
GDP can mainly calculate in three ways i.e Income Procedure, Expenditure procedure, and Production procedure. All three procedures is returning the same result theoretically
1. Income Procedure
By this method, GDP is measured by wages and salary of people earned in jobs and self-employment plus the profit of private sector business plus Rent income of land.
GDP = Total Income + Profit from firms + Rent
2. Expenditure procedure
This method totally depends on various types of expenditure that have occurred in the nation.
GDP = (Exports − Import) + Consumer expenditure + Investors expenditure + Government expenditure
According to the above formula, GDP is calculated by the expenditure of export minus imports plus the Expenditure of consumers’ spending on the goods plus the expenditure of investors on business capital plus Government expenditure on public goods and services.
3. Production procedure
This method calculates the total market value of all goods and services produced in a particular year. To avoid the price mismatching the real GDP is calculated i.e a nations real GDP is always a fixed price.
GDP = Real GDP – Taxes + Subsidies.
Types of Gross Domestic Product
1. Real GDP
It is an inflation-adjusted measure that shows the value of goods and services produced within an economic year.
Real GDP is calculated by dividing the inflammation rate by GDP. It is also known as constant-price GDP.
2. Nominal GDP
Nominal GDP is an economic value of goods and services but it also included the current price of products and services. It shows the increasing price rate of a product throughout the year.
3. Actual GDP
It is the measurement of the economical health of a country at the current time period.
4. Potential GDP
Potential GDP is the economic calculation for the ideal situation of a nation like a steady currency, low inflation, and full employment.
History of GDP
The basic concept of GDP was firstly introduced by William Petty between 1652 and 1674 to defend the unfair landlord taxation process.
Later this method is changed and developed by Charles Davenant and their modern concept is established by Simon Kuznets in 1934.
After that, a conference was held by Bretton Woods in 1944 known as the Bretton Woods conference and this conference becomes the most effective tool to measure economic health.