The full form of GDP is Gross Domestic Product which indicates the total money value of goods and services that are produced within the boundary of a certain country in a specific year.
Generally, it is used to figure out the extension of a country’s economy. Through the figure of GDP, we can judge the health of an economy, how much good it is as well as we can get an idea of the standard of living of the particular country.
If the GDP of a country is good, then standard of living of that country is good or increases and if the GDP of a country is not good that means living standard of the people of that country is poor.
In case of India, these sectors such as industry, service sector and agriculture including allied services that contribute the major part in GDP. Economic growth & development is represented by growth rate of GDP. Most of the investors considered GDP as key point before making any investment.
History of GDP
To have a complete understanding about any topic, you have to know the significance and basis of it. So, before proceeding further, let’s understand the history of GDP, Why we use this term in our daily life? Also GDP came into existence like other things. Almost, every newspaper, news channel mentions this term GDP for various purposes.
GDP is one of the great invention of the 20th century. In between 1652-74 for unfair taxation of the English and the Dutch, the concept of the GDP was developed by William Petty. This method was further developed by Charles Davenant.
Modern concept of GDP was developed by Simon Kuznets, an American economist and statistician. He was awarded Nobel memorial Prize in economic science in 1971. He published a report titled National Income 1929-35. This report was submitted to the U.S Congress. It was not until 1944 when GDP was given its due recognition.
In Bretton Woods conference, 1944 which oversaw establishment of institutions such as World Bank and IMF. Here, for the first time GDP was adopted as the tool for sizing of the economics of various countries. In this way, GDP was known to the world.
Concept of GDP
Here, we will explain the concept of GDP. Suppose, you are living in a village or town. People will earn money in that village from various sources. No one will help other person.
To earn money, you have to provide valuable things such as providing education to the children, providing labour in the construction sites etc. and in the form of goods such as milk, roti delivered in an organization. So, to calculate GDP, you have to add the money value of products and services is:
Money value of providing education (in the form of salary) + money value of roti/milk sold + money value for providing labour.
In a broad sense, the same thing is considered to get the value of GDP.
GDP Per Capita: A citizen’s contribution to country’s GDP in the specific year.
Per Capita GDP= National Income ÷ Population
Calculation of GDP
There is different approach that are used to calculate GDP:
(i) Production Approach
(ii) Income Approach
(iii) Expenditure Approach
GDP can be calculated using various methods. Here, we have taken a simple approach to calculate GDP which is sum of the total consumption, gross investment and government including exports values minus imports.
GDP = COE + GOS + GMI + PM & MSP
GDP = Private Consumption + Gross Investment + Government Spending + (Export – Import)
Generally, GDP is measured using three methods such as:
1. Output Method: To calculate the monetary value or market value of all the provided goods and services that are produced within the boundary of the country. To ignore error in the calculation of the GDP as the prices changes frequently, GDP is calculated on the basis of GDP at constant prices of real GDP.
GDP (According to output method) = Real GDP (GDP at constant prices) – Taxes + Subsidies.
2. Expenditure Method: In this method, calculation is done on the basis of total expenditure imposed on goods and services within the country. So, as per expenditure method:
GDP = C + I + G + (X-IM)
Where, C = Consumption expenditure, I = Investment expenditure, G = Government spending, (X-IM) = Export – Import.
3. Income Method: In income method, factors that are taken into consideration are labour and capital within the specific country. According to this method:
GDP = GDP at factor cost + Taxes – Subsidies
Importance of GDP
It is a useful statistic which reflects the condition of an economy whether growing or contracting. Country like India releases statistic of GDP every year.
Through the figure of GDP, government take vital decision whether there is any need to add cash into it or to withdraw money from it.
It is also very important factor in business purpose. Investors follow GDP whether the economy is suitable for investment or not.
We hope this post will help you to know the full form of GDP, History of GDP, Concept of GDP, Calculation of GDP, Importance of GDP, etc. For get more post like this visit this website regular basis. Also, you can follow us on Facebook and Twitter to latest post notification immediately.
FAQs on Full Form of GDP
Q1. What are the three methods of GDP calculation?
Ans: In most of the economy, three most popular methods are followed to calculate GDP are: (i) Output Method (ii) Expenditure Method (iii) Income Method.
Q2. What are the major 5 components of GDP?
Ans: The major 5 major components of GDP are: Consumption (private), investment, government expenditure, depreciation and net exports.
Q3. Is it good condition to have a high GDP for a country?
Ans: GDP is the Gross Domestic Product that indicates the prosperity of the country. So, high GDP shows the economic condition of the country is very good. On the other hand, low GDP means the economy is in trouble and losing its ground.