GDP Full Form Name: GDP Meaning
Full
Form of GDP :
Gross
Domestic Product
GDP
Full Form is Gross Domestic Product. It
is the main indicator that helps to gauge the economy of a nation. It stands
for the total value of all services and goods produced for a given period. It
can also be thought as the size of the economy of a country. In general, GDP is
projected in comparison with the preceding quarter of the year.
GDP
can be approximated in three ways to give out identical figures which include
(1) Based on Expenditure – The amount of money spent, (2) Based on Output – The
number of goods and services sold, (3) Based on Income – The amount or
percentage of profit earned. GDP is constantly revised in order to obtain
greater accuracy. GDP not only helps to measure the economy of a country but
also helps to measure the contribution of industrial sector relatively.
GDP
Full Form – Additional Information
Gross
Domestic Product is a popularly used monetary measure of the value of all the
finished goods or services that are manufactured or produced in a particular
period (either yearly or quarterly). Nominal GDP calculations are generally
used for the determination of the performance of the country or a particular
region in terms of economics.
It
is also utilized for the purpose of making comparisons. The issue with nominal
GDP is that it does not highlight differences in the inflation rates and the
cost of living of the countries being compared. This problem makes it a less
feasible option in this respect and therefore GDP PPP per capita basis model is
used while distinguishing between living standards of various nations
concerned.
It
is to be understood that GPD does not provide for an absolute calculation of
economic activity. It provides for an account of final output or value that is
added at every level of production but does not highlight total sales or total
output during the whole production process. In the United States of America,
BEW (which stands for the Bureau of Economic Analysis) has formulated a
fresh quarterly statistic, which is known as gross output (abbreviated as GO),
which is a better measure that includes total revenues or sales obtained at all
levels of production. GO has been strongly advocated by Mark Skousen. Many
countries have started adopting the new measure.
Presently,
the largest GDP is of the United States of America in the American continents;
Germany in the European region; Nigeria in the African continent; China in
Asia; and Australia in Oceania region. There are many aspects of GDP that need
to be dealt with because it is not a simple concept per se. So, here are
five things you must know about GDP:
History
behind GDP
The
history of GDP can be traced back as far as the 17th century. It was
William Petty who first introduced the concept of GDP for the purposes of
defending landlords against the imposition of unfair taxation policies at the
time of war between the English and the Dutch. The concept was developed and
given fine edges by Charles Davenant in the year 1695. The concept of modern
day GDP was reported in a US Congress report in the year 1934. It was developed
by Simon Kuznets.
Post
Bretton Woods Conference in the year 1944, GDP became a popular tool for the
measurement of the economy of a country. During that period, the Gross National
Product (abbreviated as GNP) was prevalent but the switch became rampant in the
1980s. The GNP was restricted to the measurement of the production done by the
citizens of a country within and outside and did not take into consideration
residential institutional units. The history of GDP is old and rich as there
have been many instances in history where a similar concept has been put to use
for measurement of economic activity.
Production
approach of GDP
One
of the ways for the determination of GDP is the Production approach. It is most
direct of all other approaches namely, the expenditure approach and the income
approach. In this type of approach, there is summing up of outputs obtained from
every class of enterprise for the purposes of arriving at the total. This
approach is close to what has been formulated by the Organization for Economic
Co-operation and Development (abbreviated as OECD).
The
approach comprises the following:
- It estimates the gross value of
the output generated domestically from among various activities.
- It causes the determination of
the intermediate consumption, which is basically the cost of supplies,
material, and services that are used for producing finished goods or
services.
- It causes a deduction of
intermediate consumption from the gross value for obtaining the added
gross value.
For
the purposes of measuring output generated from domestic goods or services,
economic activities have been categorized into different sectors. Upon
categorization of economic activities, the output from each sector is estimated
with the help of either of the following methods:
- By multiplication of the output
of every sector according to their respective market prices and then the
addition of them together.
- By collection of data based on
inventories and gross sales obtained from the records of companies and
then additional of all of them together.
The
gross value obtained from every sector is added for obtaining the Gross Value Added
(abbreviated as GVA).
Income
Approach
The
second method for determination of GPD is Income Approach. It is basically sum
of the primary incomes that resident producer units distribute. This method
makes use of incomes that companies and firms pay to households in the form of
wages, rent for land, interest for capital, profits for businesses, etc. In the
United States of America, incomes include corporate profits, incomes of
farmers, interest on incomes, salaries and wages to labor, income generated from
non-agricultural businesses.
Expenditure
Approach
The
third method of determining GDP is the expenditure approach. In this method,
the GPD is calculated by adding the final usages of goods or services (except
that of intermediate consumption) that are calculated at purchasers’ prices.
The underlying principle in this method is that most products are manufactured
for the purpose of sale thus, measurement of total expenses for buying products
is one way to calculate production.
Cross-border
comparison and PPP
The
GDPs of different countries can be compared by means of conversion of the value
of the national currency in accordance with the prevalent currency exchange
rate or PPP (which stands for Purchasing Power Parity) exchange rate. For
greater clarification, Currency Exchange Rate refers to the exchange rate used
in International Foreign Exchange Market. PPP exchange rate refers to the
exchange rate which is the exchange rate relied on the Purchasing Power Parity
of a currency relative to a chosen standard (that is generally the US Dollar).
It is more of a theoretical method of comparing the GDPs.