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Gross Domestic Product

GDP Measure and its Figure
Syedur Rahman

Submitted By: Syedur Rahman Russell S121346

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Submitted to: Henry Coulter Lecturer of Macroeconomics Perdana College of Malaysia

Econ-102

GDP

S121346

Gross Domestic Product

What is GDP?
Gross Domestic Product (GDP) is the total market value of goods and services produced within a country in a specific period or in a year. GDP includes all of the public and private consumption, Investment, Government Expenditure and Export less Import. GDP=C+I+G+(X-M)

Consumption:
Consumption is three types, Durable goods, non-durable goods and services. This is the largest personal expenditure of GDP.

Investment:
Investing on buildings, equipment, software, inventories which has physical existence. Purchasing share of a company is not investing; its an exchange of financial asset to another.

Government Expenditure:
Government expenditure includes all the goods bought by the government and wages for the employee excluding transfer payment because transfer payments are not provided in exchange of goods or services. E.g. pension, unemployment benefit etc.

Export-Import:
GDP captures the amount a country produces including goods and services for other nations therefore exports are added. When the country import product for consumption or others uses that should be deduct.

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Econ-102

GDP

S121346

How is GDP measured? Measuring GDP:

Expenditure Approach:
Individual expenditure incurred in 1 year. Goods and services produced only include final goods adding all the goods and their value together. E.g. Health services, Medicines, Rice etc. this will happen with Consumption, Investment, Government expenditure and export less import. Consumption includes personal consumption expenditure of durable goods, non durable goods & services. Investment includes gross private domestic investment of final purchase of machinery, equipment, all types of construction, changes in inventory except transfer payment and second hand purchase. Government expenditure provides for public services. Expenditure occurred on roads, schools, bridges etc, excluding transfer payment. Net Exports which is excluded Imports.

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Econ-102

GDP

S121346

Income Approach:
Sum of the total individual living income in 1 year of the country. Wages: Salary for employee with pension, health funds and others provided by private firms or government. Rent: Rent received by land, building or working premises of property resources. Interest: money paid by the business to supplier of money capital. Including the interest received on savings. Profits: Personal income such as sole business, partnerships business. And corporate profits earning of owners corporate income taxes, dividend etc.

Difficulties: (Double Counting)

We must be careful while counting the GDP. We should not double count the value of a product. GDP figures the value added included by the company. The value added is the different between a firms sales and purchase of material or services from other firms. E.g. value of flour mills and also the value of pizza are double counted. Either adds the value of pizza or the value of flour and difference between flour and pizza.

Why are GDP figures important? Usages of GDP figures

1. 2. 3. 4. 5. GDP shows how economy is doing Make future economy plan It helps to compare over time Test model Judge about economic welfare

Important factors when comparing over time

1. 2. 3. 4. 5. 6. 7. Inflation Accurate system Growth in population Quality of goods and services Government spent of military Population Income distribution

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