GDP Assignment

Gross Domestic
Product
M.Com 1st year
Content
1. What is GDP and what is nominal and real
GDP
2.Introduction to three methods of GDP
calculation
3. Detail how to calculate GDP using all three
approach
4. Advantages -disadvantages of GDP and
conclusion
What is GDP ?
Gross Domestic Product (GDP) is an
economic indicator that measures
the total value of all goods and
services produced within a country
in a given period, usually a year or a
quarter.
Nominal and Real GDP
Nominal GDP measures the value of

goods and services
at current market prices.
Real GDP measures the value of

goods and services
.
at constant prices,
typically base-year prices
Components of GDP
* Consumption: Spending by households on goods
and services.
* Investment: Spending by businesses on capital
goods, such as machinery and equipment.
* Government Spending: Spending by the
government on goods, services, and public
infrastructure.
* Net Exports: Exports minus imports.
Key term
GDP at Market Price
GDP at market price (MP) refers to the total market value of all final
goods and services produced within a country's borders during a
specific period. It is calculated using the current market prices of
these goods and services.
GDP at Factor cost

GDP at FC = GDP at MP - Indirect Taxes + Subsidies
NDP at Market price

NDP at MP = GDP at MP - Depreciation
NDP at Factor cost

NDP at FC = GDP at FC - Depreciation
Income Method
Under INCOME APPROACH METHOD, we calculate the income earned by all the
factors of production in an economy.
Factor of production are the inputs that go into producing the final product or
service
GDP= Rent + Interest+ Profit+Mixed Income
Rent: Income earned from the use of land or property.

Interest: Income earned from lending money or investing in
financial instruments.
Profit: Income earned by businesses after deducting costs.
Mixed Income: Income earned by self-employed individuals or
unincorporated businesses, combining elements of both labor and
capital.
GDP{market cost}= GDP{factor cost} + {indirect taxes-

subsidies}
Expenditure Method
This is converse of income approach as rather that Income, it begins with money
spent on goods & services. This measures the total expenditure incurred by all
entities on goods & services within the domestic boundaries of a country
GDP= C+I+G+[EX-IM]
Where,
C:- Consumption Expenditure, where consumers spend money to buy
various goods & services. For ex- food, gas bill, car etc.
I:- Investment Expenditure, when businesses spend money as they invest
in their business activities. For ex- buying land, machinery etc.
G:- Government Expenditure, when the government spends money on
various development activities.
EX-IM]:- Export minus Imports, we include the exports to other countries in
the Calculation of GDP and subtract the imports from other countries to
our country.
Output [Production]
Method
The GDP Output Method measures the monetary or market value of all the goods &
services produced within the borders of the country.
In order to avoid a distorted measure of GDP due to price level changes , GDP at
constant prices or Real GDP is computed
GDP= Total value of sales- Intermedieate consumption
Sales(Domestic sales + export) +change in stock+ Good produced

for self consumption (if given)
Intermediate consumption is represented by the Value of
Intermediate Inputs term. By subtracting this from the Value of
Output, we get the net value added to the economy.
Pros and cons of GDP
ADVANTAGES:- DISADVANTAGES:-
A useful figure for comparing
countries . Can hide inequalities as it does
not show the distribution of
Often used to rank countries to wealth.
establish a fair system of aid payments.
Can be manipulated by
governments who want to
Is a good indicator of the state of
appear poor to collect more aid.
the economy and provision of
services.
Does not take into account
subsistence or informal economies
Fairly easy to calculate from
which are very important in less
official government figures. developed countries.
GDP and Welfare
Limitation of GDP
Distribution of GDP
Change in prices
Non-monetary exchanges
Externalities
Rate of population growth
GDP alternatives:
Human Development Index[HDI]:
It is a geometric means of normalised indices across three
dimensions- life expectancy, average years of schooling and gross
national income per capita- which emphasises people and their
capabilities in assessing a country’s development.
Genuine Progress Indicator[GPI]:

It nets the positive and negative results to decide whether
economic growth has been of benefit to the population overall, for
instance, by balancing GDP spending against external costs.
GDP alternatives:
Thriving Places Index[TPI]
It includes a wide variety of factors- including mental and physical
health, education and learning, work and local economy , and
“green” infrastructure- to measure economic health.
Green GDP:
It measures the cost of environmental damage as the result of
economic growth by subtracting factors such as resource depletion
and environmental degradation from the GDP with local
governments accountable for ecological conservation.
GDP alternatives:
Human Development Index[HDI]:
It is a geometric means of normalised indices across three
dimensions- life expectancy, average years of schooling and gross
national income per capita- which emphasises people and their
capabilities in assessing a country’s development.
Genuine Progress Indicator[GPI]:

It nets the positive and negative results to decide whether
economic growth has been of benefit to the population overall, for
instance, by balancing GDP spending against external costs.
Thank
you
By
SUNIDHI Yadav
M.com 1st year

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Gross Domestic

Nominal GDP measures the value of

Real GDP measures the value of

GDP at Factor cost

NDP at Market price

NDP at Factor cost

Rent: Income earned from the use of land or property.

GDP{market cost}= GDP{factor cost} + {indirect taxes-

GDP= Total value of sales- Intermedieate consumption

Sales(Domestic sales + export) +change in stock+ Good produced

Genuine Progress Indicator[GPI]:

Genuine Progress Indicator[GPI]:

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