GDP Full Form - What is GDP?

Updated:12 Sep, 2022

GDP is Gross Domestic Product. It is the market value of all the goods and services produced within the country in a particular time period. In GDP gross means "total", domestic means "within the political boundaries of the country" and product means "all the goods and services produced in a year". 

Use of GDP:

GDP determines the size and growth rate of a country's economy. It is mostly checked on an annual basis. 

For example, if we take a shopping mall, there are many services provided on each floor. There are clothes, accessories, furniture, food stalls, movie theaters, kids' playroom, etc. So, if we consider the total amount of all the services or goods that were sold after one year that cumulative value is known as GDP. 

If the GDP keeps on increasing every year, then it can be that the production in the country is more and the economy of our country is good. But if the GDP is decreasing every year this means that the production of the goods and services in our country is decreasing, which means less number of items are being sold that's leading to a decrease in the income of the businesses in the country due to which the economy goes down. The USA has the highest GDP in the world and china is the second highest in the world. 

Calculation of GDP:

The GDP is always calculated based on the purchase of the final products. For instance, if a normal person goes to the market to buy a vegetable, this purchase income is added to the GDP whereas if a chef of a hotel goes to buy a vegetable to cook and sell curry in the hotel, the purchase income of the curry in the hotel will only be added to the GDP and not the cost of the vegetable. 

The Central Statistics Office gathers and maintains all these records by identifying the purchases made by business persons and regular consumers. The GDP of a country is considered to be the assessment to check the health of the country's economic rate. If the GDP increases the companies expand and more jobs are made available. The GDP number is considered to be the foundation of macroeconomics and also it forms the basis for the government to make new policies so that the GDP number always keeps on rising. 

Just like the ups and downs in a business cycle the hike and slowdown of GDP are also seen. Whenever there is a decline in the GDP the policymakers take an action such as reducing taxes etc as there is something wrong with the country's economy because this indicates lower wealth in the country which might lead to poverty. The investment decisions and the economic policies made would every citizen of the country.

There are three ways to measure GDP:

  1. Output: It is the value of the production of all the goods and services across different departments like shops, markets, health care, construction, agriculture, transport, etc.
  2. Expenditure: It is the value of all the purchases made by the people for their homes, or buying machines for buildings and other investments and consumptions of people along with the exports and imports of the country.
  3. Income: It is the value of income received through wages, investments, rents, and profits.

Types of GDP:

There are 4 types of GDP :

  • Real GDP: This GDP is considered to be the accurate GDP of the country. The prices of the goods and services in the market are calculated at a constant price level with the help of the previous year's price levels adjusted to inflation. It tells us that if the prices of goods and services haven't changed then how much would the GDP increase or decrease?
  • Nominal GDP: This GDP is the market value of the production of the increased prices of goods and services at the current price level without adjusting to inflation. It measures the aggregate output production of goods and services at current price values.
  • Actual GDP: It is the measure of the output money value of the goods and services that are actually produced by an economy.
  • Potential GDP: It is an assumption or estimate of the output of our economy in different situations. It is the level of output an economy can produce at a constant inflation rate.

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