UG degree

What is GDP? GDP definition

What does gross domestic product mean?

“Gross” signifies that no deduction has been made for the depreciation of machinery, buildings and other capital products used in production. “Domestic” means that it is production by the resident institutional units of the country.

The products refer to final goods and services,that is, those that are purchased, imputed or otherwise, as: the final consumption of households, non-profit institutions serving house-
holds and government; fixed assets; and exports (minus imports).

GDP at market prices can be measured in three different ways:

• as output less intermediate consumption (i.e. value added) plus taxes on products (such as VAT) less subsidies on products;

• as the income earned from production, equal to the sum of: employee compensation; the gross operating surplus of enterprises and
government; the gross mixed income of unincorporated enterprises; and net taxes on production and imports (VAT, payroll tax, import duties, etc., less subsidies);

• or as the expenditure on final goods and sevices minus imports: final consumption expenditures, gross capital formation, and exports less imports.

1. Size of GDP Gross domestic product (GDP) is the standard measure of the value of final goods and services produced by a country during a period. While GDP is the single most important indicator to capture these economic activi- ties, it is not a good measure of societies’ well-being and only a limited measure of people’s material living standards. The sections and indicators that follow better address this and other related issues and this is one of the primary purposes of this publication. Countries calculate GDP in their own currencies. In order to compare across countries these estimates have to be converted into a common currency. Often the conversion is made using current exchange rates but these can give a misleading comparison of the true volumes of final goods and services in GDP. A bet- ter approach is to use purchasing power parities (PPPs). PPPs are currency converters that control for differences in the price levels of products between countries and so allow an international comparison of the volumes of GDP and of the size of economies.

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