GDP:an overview

DEFINITIONS‘ FOR
GDP
There are three ways to define
GDP.
 Each definition is conceptually
identical.
3

I. GDP is equal to the total expenditures
for all final goods and services produced
within the country in a stipulated period
of time (usually a 365-day year).
II. 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.
III. 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)
DEFINITIONS‘ FOR
GDP
4

I. GDP is equal to the total expenditures for all final
goods and services produced within the country in a
stipulated period of time (usually a 365-day year).
II. 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.
III. 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)
DEFINITIONS‘ FOR
GDP
5

I. GDP is equal to the total expenditures for all final
goods and services produced within the country in a
stipulated period of time (usually a 365-day year).
II. 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.
III. 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)
DEFINITIONS‘ FOR
GDP
6

GDP = C + I + G+(X-M)GDP = C + I + G+(X-M)
OROR
GDP = consumption + gross investmentGDP = consumption + gross investment
+ government spending+ government spending
+ (exports − imports)+ (exports − imports) 7

 “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.
 The exports-minus-imports part of the equation
(often called net exports) adjusts this by
subtracting the part of this expenditure not
produced domestically (the imports), and adding
back in domestic area (the exports). 8

Where :
C : Consumption
 I : Investment
G : Government spending
X : Exports
M : Imports 10
GDP = C + I + G+(X-M)GDP = C + I + G+(X-M)

 C : consumption
 Includes ::
 Personal expenditures mainly consists of:
 food
 households
 medical expenses
 rent, etc.
 For example, if a hotel is a private home
then renovation spending would be
measured as Consumption. 11

 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 is not included
in Investments.
12

 G : 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

 X : Gross Exports.
 Includes ::
 all goods and services produced for overseas
consumption.
 Example, If a domestic producer is paid to make
the chandelier for a foreign hotel, the payment
would be counted in gross export.
14

 M : gross imports.
 Includes ::
 any goods or services imported for consumption
 Example, If the renovation of hotel involves the
purchase of a chandelier from abroad, that
spending would be counted in gross imports.
15

INDIAN ECONOMY-FACTS ON INDIA
GDP
 The Indian economy is the 11th largest in the world.
 Ranks 5th pertaining to purchasing power parity (PPP) acc.
to World Bank
 The GDP of India in the year 2007 was US $1.09 trillion.
 India is the one of the most rapidly growing economies in the
world.
 The growth rate of the India GDP was 9.4% per year.
 Per capita income in India is $964 at nominal and $4,182 at
PPP
16

INDIA CURRENTLY HAS THE 11TH LARGEST
GDP IN THE WORLD…
17

…ACCOUNTING FOR 1.6% OF THE
GLOBAL GDP IN 2002…
18

…AND RANKS 26TH IN THE WORLD BY
TOTAL TRADE IN GOODS AND SERVICES (US$
BILLION, 2002)…
WTO: US$ billion, 2002
19

INDIA HAS BEEN ONE OF THE FASTEST
GROWING ECONOMIES IN THE WORLD OVER
THE LAST 20 YEARS
Annual average growth rates of 10 fastest growing economies over
1980-2002 excl. small countries (pop < 10 million)
Source:
WDI
20

PROJECTING GDP USING HISTORICAL
GROWTH RATES, INDIA WOULD BE THE 6TH
LARGEST ECONOMY IN 2050
WDI: Constant 1995 US$
billion
21

22
USING HISTORICAL GROWTH RATES,
INDIA WOULD BE THE 10TH
LARGEST
TRADER IN 2050

STRENGTHS OF GDP
 Broadest indicator of economic output and
growth.
 Takes inflation into account, allowing for
comparisons against other historical time
periods.
23

LIMITATIONS OF GDP
TO
JUDGE THE HEALTH OF AN ECONOMY
 Underground economy
 Official GDP does not take into account the underground economy,
 That is transactions contributing to production, such as illegal trade and tax-avoiding
activities, are unreported, causing GDP to be underestimated.
 Sustainability of growth
 GDP does not measure the sustainability of growth.
 Quality of goods
 People may buy cheap, low-durability goods over and over again, or they may buy
high-durability goods less often.
 It is possible that the monetary value of the items sold in the first case is higher than
that in the second case, in which case a higher GDP is simply the result of greater
inefficiency and waste.
 Non-market transactions
 GDP excludes activities that are not provided through the market, such as household
production and volunteer or unpaid services.
 As a result, GDP is understated. Unpaid work conducted on Free and Open Source
Software (such as Linux) contribute nothing to GDP, but it was estimated that it
would have cost more than a billion US dollars for a commercial company to develop.
24

ALTERNATIVES TO GDP
 Human Development Index (HDI)
 Calculations uses: GDP, Indicators of life expectancy and education levels.
 Happy Planet Index
 It is an index of human well-being and environmental impact.
 Measures the environmental efficiency with which human well-being is achieved
within a given country or group.
 Wealth Estimates
 Private Product Remaining
 European Quality of Life Survey
 Gross National Happiness
25

GDP:an overview

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GDP:an overview