GDP full form : You must have heard or read about the small word GDP in television news or in newspapers. But as small as this word is, its task is very big. Actually, how is the condition of the economy of any country, how developed any country is, how is the economic condition of the country, etc.
You must always hear in the news that the GDP of India is increasing or decreasing. The government is always questioned about GDP, targeted by other political parties.
But do you know what is GDP , what is the full form of GDP , types of GDP , and how it is calculated? I know that you do not know the answer to all these questions, so in this article I am going to give you all the important information related to GDP.
GDP full form in English: “Gross Domestic Product”
What is GDP
Gross Domestic Product (GDP) of any country is defined as the total economic or market value of all finished goods and services produced within that country’s borders over a specific time period.
In the words of hope, in any given time like a year in any country or economic system, if the product and service produced in any country or economic system is mixed and its price is fixed according to the market, then it is the English language of that country’s economy. GDP means “gross domestic product“.
GDP is one of the most commonly used indicators to measure the economic health, financial well-being and standard of living of a country. Gross Domestic Product is the total value of all finished goods and services produced within a country’s borders over a period of time. GDP truly measures the ‘size’ of an economy.
Types of GDP
When we talk about GDP, there is mention of Nominal GDP and Real GDP.
- Nominal GDP – The nominal GDP of a country is calculated using the current market value and is not adjusted for inflation. Nominal GDP refers to the overall changes in value of a country, disregarding inflation or deflation of the economy.
- Real GDP – Real GDP reflects the economic value of finished goods and services within a country’s borders by adjusting inflation or deflation of an economy. Real GDP reflects the exact state of a country’s economic condition as it adjusts for inflation rates.
- Actual GDP – Actual GDP measures the economy of a country at the present time.
- Potential GDP – The calculation of the economy of a country under ideal conditions like constant currency, minimum inflation and full employment is called potential GDP.
How is GDP calculated?
The GDP of a country can be calculated in the following ways:
- Expenditure: It is the total value of all purchases made within the country plus the net exports of the country abroad.
- Earnings: It is the total amount earned by all the individuals and enterprises in the country. It is also called Household Income.
- Manufacturing process: It is the total market value of all the goods produced within the country.
What are the components of GDP?
To understand GDP, it is important to understand its components.
- Consumption – Consumption is the total amount of products and services purchased by the residents of a country. An increase in consumption is considered a sign of a strong economy because it shows that the consumer has purchasing power.
- Investment – Any domestic investment, capital expenditure, on new properties which will give future returns is known as investment. Higher levels of investment are important because they increase productive capacity and employment rates.
- Government – Money spent by the government on things and services like education, transportation, military and infrastructure is another component of GDP.
- Exports – Imports – This is the difference between exports and imports of goods and services produced in the domestic economy. If the country’s exports exceed the value of its imports, the situation is positive, and there is good trade in the country. If the country’s imports exceed the value of its exports, the situation is negative.
Why is GDP important?
GDP is an important measure of the size, performance and general health of an economy. GDP is used to measure the economic health of a country by comparing the current GDP with the previous one.
If the numbers are increasing, the economy has become more productive. If the numbers are declining, the economy has become less productive. Let’s say GDP was 2% in 2021. GDP in 2022 is 3%. It means that the country is progressing. If GDP was 1% in 2022, it would mean that the productivity of the country has decreased. Companies, investors and politicians use GDP data to make future decisions.
- Companies – Companies that are looking for new market expansions use GDP figures to assess the state of the market.
- Investors – Investors use this data to assess the economic condition of the country in which they are going to invest. They find out from GDP which countries are growing the fastest and can provide the highest ROI (Return on Investment).
- Politicians – Politicians use GDP to make important policies. They try to understand how their current policies have affected the economy.
What are the deficiencies of GDP?
- Black market transactions are not publicly recorded in GDP. The size of the black market in different countries can be different and in some countries it is so large that it becomes a significant component of a country’s GDP. Being illegal in nature, it is impossible to value it. Consequently, in such a situation, the GDP of a country can tell its economic activity.
- As technology advances, manufacturers are able to produce better quality products at lower production costs. Consumers can enjoy the utility of better products than before without paying a proportionately higher price. Since relative utility growth is difficult to measure, such progress is not included in GDP.
- There are some products that are produced for personal use. For example, some farmers grow crops for themselves. It becomes difficult to measure the size of such products as there is no formal record of them. Because of this, GDP is not able to properly assess the economic condition of the country.
GDP Full Form: Conclusion
In a way, GDP, used as a unit, is an easy way to know the economic status of any country. We always get to read and hear about GDP, so it is important that you have the right information about it.