S GDP computed on the income basis Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to the information required especially information on expenditure and production by governments. When one compares GDP figures from one year to another, it is desirable to compensate for changes in the value of money — i. To make it more meaningful for year-to-year comparisons, it may be multiplied by the ratio between the value of money in the year the GDP was measured and the value of money in a base year. Suppose also that inflation had halved the value of its currency over that period.
For example, when a ship is built, GDP does not reflect the total value of the completed ship, but rather the difference in values of the completed ship and of the materials used in its construction. Proponents of the use of GDP as an economic measure tout its ability to be broken down in this way and thereby serve as an indicator of the failure or success of economic policy as well.
Businesses can also use GDP as a guide to decide how best to expand or contract their production and other business activities. And investors also watch GDP since it provides a framework for investment decision-making. The "corporate profits" and "inventory" data in the GDP report are a great resource for equity investors, as both categories show total growth during the period; corporate profits data also displays pre-tax profits, operating cash flows and breakdowns for all major sectors of the economy.
All, when correctly calculated, should yield the same figure. These three approaches are often termed the expenditure approach, the output or production approach and the income approach.
GDP Based on Spending The expenditure approach or s pending approachwhich is the most common method, calculates the monies spent by the different groups that participate in the economy. For instance, consumers spend money to buy various goods and services and businesses spend money as they invest in their business activities buying machinery, for instance.
And governments also spend money. All these activities contribute to the GDP of a country. In addition, some of the goods and services that an economy makes are exported overseas, their net exports.
And some of the products and services that are consumed within the country are imports from overseas. The GDP calculation also accounts for spending on exports and imports. This approach essentially measures the total sum of everything used in developing a finished product for sale. This approach assumes a relatively fixed value of the completed ship relative to the value of these materials and services in calculating value added.
GDP Based on Production The production approach is something like the reverse of the expenditure approach. Whereas the expenditure approach projects forward beyond intermediate costs, the production approach looks backward from the vantage of a state of completed economic activity.
All this constitutes national income, which is used both as an indicator of implied productivity and of implied expenditure. For one, there are some taxes — such as sales taxes and property taxes — that are classified as indirect business taxes.
In addition, depreciation — which is a reserve that businesses set aside to account for the replacement of equipment that tends to wear down with use — is also added to the national income.
Subtracting the payments made to foreigners from the payments made to Americans provides a net foreign factor income. With this approach, the GDP of a country is calculated as its national income plus its indirect business taxes and depreciation, as well as its net foreign factor income.
GDP calculated in this way — incorporating income received from overseas — is also referred to as gross domestic income GDIor as gross national income GNI. Because certain countries have most of their income withdrawn abroad by foreign corporations and individuals, their GDP figures are much higher than those of their GNI.
GDP increases when the total value of goods and services that domestic producers sell to foreigners exceeds the total value of foreign goods and services that domestic consumers buy, otherwise known as a trade surplus. If domestic consumers spend more on foreign products than domestic producers sell to foreign consumers — a trade deficit — then GDP decreases.
At first glance, it is tempting to believe protectionism leads to increased GDP. However, fewer imports directly lead to fewer exports. The vast majority of economic literature suggests that protectionist policies reduce the GDP of both domestic and foreign nations.
And, as a logical corollary, strong evidence suggests trade liberalization, or the removal of protectionist barriers by a home country, creates significant productive benefits and expands GDP. How is the U. GDP is measured based on the expenditure approach.
The Bureau of Economic Analysis BEA estimates the components used in the calculation from data ascertained through surveys of retailers, manufacturers, and builders and by looking at trade flows.
All output from offices located in the U.GDP per Capita: This is the best way to compare gross domestic product between countries. Some countries have enormous economic outputs because they have so many people.
Some countries have enormous economic outputs because they have so many people.
GDP(Gross Domestic product) is a measure of economic growth of a country. It is the money value of final goods and services produced within the geographical boundary of a country in a year. Gross Domestic Product (GDP) is the broadest quantitative measure of a nation's total economic activity.
More specifically, GDP represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time.
The four components of gross domestic product are personal consumption, business investment, government spending and net exports. That tells you what a country is good at producing. That's because GDP is the country's total economic output for each year.
It's equivalent to what is being spent in. Sep 01, · This stands for Gross Domestic Product. GDP is a common measure that’s used to roughly represent the size of a country’s economy.
The way . These are external links and will open in a new window GDP, or Gross Domestic Product, is arguably the most important of all economic statistics as it attempts to capture the state of the economy.