GDP (gross domestic product)

Gross domestic product. It is the main existing macro magnitude, which measures the monetary value of the production of final goods and services of a country, over a period of time, usually one year.

Summary

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  • 1 Definition
    • 1 Methods for calculating GDP
      • 1.1 Expenditure method
      • 1.2 Value added method
      • 1.3 Income method
    • 2 Nominal GDP versus real GDP
    • 3 Domestic Product versus National Product
    • 4 GDP per capita
  • 2 Sources

Definition

GDP (GDP) is the monetary value of the final goods and services produced by an economy in a given period. Also called Gross Domestic Product ‘( GDP ).

The term “product” refers to added value; “internal”, to which is the production within the borders of an economy; and “gross”, to which the variation of inventories or the depreciations or appreciations of Capital (Economy) are not accounted for .

Methods for calculating GDP

There are three equivalent theoretical methods of calculating GDP:

  • Expendituremethod .
  • Income method.
  • Value addedmethod .

Expenditure method

GDP is the sum of all expenditures made for the purchase of final goods or services , produced within an economy , that is, purchases of intermediate goods or services and also imported goods or services are excluded.

Value added method

GDP is the sum of the aggregate values ​​of the various stages of production and in all sectors of the economy. The added value that a company adds in the production process is equal to the value of its production minus the value of intermediate goods.

Income method

GDP is the sum of earnings of employees, profits of companies and taxes less subsidies. The differences between the value of the production of a company and that of intermediate goods have one of the following three destinations: workers in the form of labor income , companies in the form of profits or the State in the form of indirect taxes, such as VAT.

Nominal GDP versus real GDP

It must be taken into account that production is measured in monetary terms, for this reason, inflation can make the nominal measure of GDP greater from one year to the next and yet real GDP has not varied. To solve this problem, the real GDP is calculated by deflating the nominal GDP, through a price index , more specifically, the GDP deflator is used, which is an index that includes all the goods produced.

For international comparisons, GDP is usually calculated in dollars. Obviously, this measure is greatly affected by changes in the exchange rate, since the exchange rate is usually very volatile. To solve this problem, economists use another method to make international comparisons of the different GDPs; This method consists of deflating the GDP using the purchasing power parity (better known as PPP, from the English purchasing power parity ).

Domestic Product versus National Product

In the case of the Gross Domestic Product (GDP), the value added within the country is accounted for, and in the case of the Gross National Product]] (GNP), the value added is accounted for, by the factors of nationally owned production.

Gross Product (PB) versus Net Product (PN): The difference between the PB and the PN is the depreciation of capital. The Gross Product does not take into account the depreciation of capital, while the Net Product does include it in the calculation.

GDP per capita

The GDP per capita is the average of the Gross Product for each person, that is, it is a magnitude that tries to measure the material wealth available. It is calculated by dividing total GDP by the number of inhabitants in the economy.

 

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