What is GDP
The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total value of all goods and services produced over a specific time period.
Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 1%, this is thought to mean that the economy has grown by 1% over the last year.
Calculating the GDP is pretty complicated but on a very simplistic level calculation can be done in one of two ways:
The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies.
The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports. Here are some examples of the GDP's of a few countries as on 13th November 2008. However I cannot guarantee the authenticity of this data!!
Note added on 17th August 2010 based on Economic Time news article-
CHINA surpassed Japan as the world’s second-largest economy last quarter, capping the nation’s threedecade rise from Communist isolation to emerging superpower.
Japan’s nominal gross domestic product for the second quarter totalled $1.288 trillion, less than China’s $1.337 trillion, the Japanese Cabinet Office said on Monday. Japan remained bigger in the first half of 2010, the government agency said. Japan’s annual GDP is $5.07 trillion, while China’s is more than $4.9 trillion.
Some other definitions of GDP
A country’s Gross Domestic Product (GDP) is a measure of the total flow of goods and services produced over a specified time period, usually a year.
The word ‘gross’ means that no deduction for the value of expenditure on capital goods for replacement purposes is made. The word ‘domestic’ means that income arising from investment and possessions owned abroad is not included; and this distinguishes Gross Domestic Product (GDP) from Gross National Product (GNP).
GDP is the standard measure of the size of the economy. It is the total production of goods and services within the United States.
The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and output for a given country's economy. GDP is defined as the total market value of all final goods and services produced within the country in a given period of time (usually a calendar year). It is also considered the sum of a value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is given a money value.
The most common approach to measuring and understanding GDP is the expenditure method:
GDP = consumption + gross investment + government spending + (exports − imports), or,
GDP = C + I + G + (X-M).
"Gross" means depreciation of capital stock is not subtracted. 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).
Gross Domestic Product (GDP) is the most commonly used indicator of national income.
It attempts to measure the sum of incomes received by the various wealth-creating sectors of the economy, from manufacturing and retail to agriculture and service industries.
In the UK, this data is published and revised every three months by the Office for National Statistics.
Essentially, it tells us how much money was made in the economy over a certain period of time.
The figures are "gross" because GDP does not allow for the depreciation of physical capital - wear and tear on factory machines, office equipment becoming outdated etc.
Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 1%, this is thought to mean that the economy has grown by 1% over the last year.
Calculating the GDP is pretty complicated but on a very simplistic level calculation can be done in one of two ways:
- Either by adding up what everyone earned in a year (income approach), or
- By adding up what everyone spent (expenditure method).
The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies.
The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports. Here are some examples of the GDP's of a few countries as on 13th November 2008. However I cannot guarantee the authenticity of this data!!
| Country | GDP in trillion USD | Key Interest % |
| USA | 13.81 | 1.00% |
| Japan | 4.38 | 0.3.% |
| Germany | 3.32 | 3.19% |
| China | 3.28 | 6.66% |
| UK | 2.8 | 3.00% |
| France | 2.59 | NA |
| Italy | 2.1 | 3.75% |
| Canada | 1.43 | 2.25% |
| Brazil | 1.31 | 13.75 |
| Russia | 1.29 | 12.00% |
| India | 1.2 | 7.50% |
| Australia | 0.91 | 5.25% |
| Switzerland | 0.42 | 2.00% |
| Czek Republic | 0.17 | 2.75% |
| Iceland | 0.02 | 18.00% |
Note added on 17th August 2010 based on Economic Time news article-
CHINA surpassed Japan as the world’s second-largest economy last quarter, capping the nation’s threedecade rise from Communist isolation to emerging superpower.
Japan’s nominal gross domestic product for the second quarter totalled $1.288 trillion, less than China’s $1.337 trillion, the Japanese Cabinet Office said on Monday. Japan remained bigger in the first half of 2010, the government agency said. Japan’s annual GDP is $5.07 trillion, while China’s is more than $4.9 trillion.
Some other definitions of GDP
A country’s Gross Domestic Product (GDP) is a measure of the total flow of goods and services produced over a specified time period, usually a year.
The word ‘gross’ means that no deduction for the value of expenditure on capital goods for replacement purposes is made. The word ‘domestic’ means that income arising from investment and possessions owned abroad is not included; and this distinguishes Gross Domestic Product (GDP) from Gross National Product (GNP).
GDP is the standard measure of the size of the economy. It is the total production of goods and services within the United States.
The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and output for a given country's economy. GDP is defined as the total market value of all final goods and services produced within the country in a given period of time (usually a calendar year). It is also considered the sum of a value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is given a money value.
The most common approach to measuring and understanding GDP is the expenditure method:
GDP = consumption + gross investment + government spending + (exports − imports), or,
GDP = C + I + G + (X-M).
"Gross" means depreciation of capital stock is not subtracted. 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).
Gross Domestic Product (GDP) is the most commonly used indicator of national income.
It attempts to measure the sum of incomes received by the various wealth-creating sectors of the economy, from manufacturing and retail to agriculture and service industries.
In the UK, this data is published and revised every three months by the Office for National Statistics.
Essentially, it tells us how much money was made in the economy over a certain period of time.
The figures are "gross" because GDP does not allow for the depreciation of physical capital - wear and tear on factory machines, office equipment becoming outdated etc.
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