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)


4





5





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 spendingX : 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

Education

Transcript of GDP:an overview