What is GDP in the economy? Gross domestic product

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:41

It is quite difficult for an ordinary person without an economic education to understand what GDP is. In the economy, this indicator plays a very important role. Based on it, one can assess the level of economic development of the state and its competitiveness in the international market.

Gross domestic product (GDP) is the total of all goods (goods and services) produced by residents in the territory of a particular country during the year, expressed in the prices of the final product.

In simple terms, gross domestic product is the total amount of all goods and services produced by all enterprises and organizations in the country for a certain reporting period (calendar year is most often estimated).

What is GDP in an economy?

This indicator is very important in assessing the efficiency of the country's economy. Gross domestic product characterizes the rate of growth and the level of its development. Often, the GDP indicator is used to assess the standard of livingthe population of the state. The higher this indicator, the higher the standard of living is considered (there is indeed a connection between the indicators, but other, more specific economic indicators should also be used).

Nominal and real gross domestic product

GDP can be of two types:

Nominal (calculated in the prices of the current period).
Real (calculated in prices of the comparable previous period). Most often, the prices of the previous year are taken for comparison.

Calculating real GDP allows you to offset the impact of price increases on this indicator and determine the net growth of the state economy.

Most often, the GDP indicator is calculated in the national currency, however, if there is a need to compare the corresponding values of different countries, it can be translated into another currency at the appropriate exchange rates. Global GDP growth is as follows (2013).

Income (distributive) method of calculating GDP

What is GDP in the economy? This is, firstly, an indicator based on an assessment of the profitability of the owners of production factors. The calculation is done by summing them up. At the same time, the following components are included in the amount of GDP:

W is the total amount of wages paid to all employees of the country (both residents and non-residents);
Q - the amount of contributions to social insurance of the population;
R – profit (gross);
P - mixed income(gross);
T - taxes (on imports and production).

Thus, the calculation formula looks like: GDP=W + Q + R + P + T

Expense (production) method

The population of the country in the course of their labor activity produces different types and forms of the final product (meaning specific goods or services that have a certain value). It is the aggregate of the population's expenditures on the acquisition of final products of labor activity that will constitute the gross domestic product. When calculating GDP by the production method, the following indicators are summed up:

C – consumer spending of the country's population;
Ig - private investment injections into the country's economy (gross);
G - public procurement (purchase of goods and services by the government)
NX is net exports (the difference between a country's exports and imports).

GDP is calculated using the formula: GDP=C + Ig + G + NX

Calculation by value added

The Institute of Economics allows the calculation of the amount of GDP through value added. This technique makes it possible to obtain the most accurate indicator of GDP, since it discards intermediate products that can be mistakenly calculated as final products in the previously considered methods. That is, the use of value added calculation eliminates the possibility of double counting. By summing up the value added of all goods and services in a country, GDP can be reliably calculated. This is because value added is the market value of a good forminus the cost of materials and raw materials purchased from suppliers.

GDP per capita

One of the most significant and indicative indicators of the state's economic development level. It is determined by dividing the total GDP by the number of inhabitants of the country and shows how many products were manufactured over a certain period on average for each resident of the state. This indicator is also called “per capita income.”

Another commonly used indicator of economic development is the gross national product (GNP), which sums up the final product produced both inside and outside the country. The main condition is that the manufacturer of the products should be residents of this state.

What is GDP in the economy and its role in the analysis of ongoing changes, we have already studied. So what is the real GDP of the countries of the world today?

Ranking of countries by nominal GDP

This rating is based on the nominal GDP converted into dollars at the market (or set by the authorities) rate. The world economy is arranged in such a way that this indicator is somewhat underestimated in developing countries, and overestimated in developed countries. This is due to the fact that the difference in the cost of homogeneous products in different countries is not taken into account.

Thus, the top ten, according to the IMF for 2013, is as follows:

Ranking of countries by nominal GDP per capitapopulation

The level of GDP per capita is indicative, but not the most accurate indicator that characterizes the economy, since it does not take into account the specifics of the sectoral development of the economy, the cost of production, its quality, as well as other equally important elements of the economic system.

The list of 10 countries with the highest GDP per capita, according to the IMF for 2013, looks like this:

The problem of Russia's economic slowdown

The global crisis processes, as well as a number of subjective economic factors, caused the Russian economy to weaken somewhat in 2013-2014. GDP, accordingly, grew at an extremely low rate. So, according to Alexei Ulyukaev, who holds the post of Minister of Economic Development of the Russian Federation, 2013 was the worst year for the Russian economy after the crisis year of 2008. During this period, Russia's gross domestic product did not grow at the pace that was expected. Thus, the expected GDP growth rate was reduced by the department from 3.6% at the beginning of the period to 2.4% in June and, finally, 1.4% in December.

The situation in the industry also remained deplorable. If the extractive industry still showed a slight increase, then the processing industry even showed some decline. Inflation also hit 0.5% more than expected.

Causes of the crisis in the Russian economy

Thus, one can see signs of stagnation in the Russian economy. On thethere are objective reasons that can be divided into 2 groups: internal and external.

Internal factors

The economy has a raw material model. With this model, the main share of the economy's income is generated by the export of raw materials, which are exhausted over time. The volume of domestic manufacturing and its competitiveness are also declining.

Problems with investment attractiveness. The most important condition for the development of certain regions of the country is the availability of investments in the real sector of the economy. Today, many foreign investors are puzzled by the lack of security of possible financial injections. Therefore, it is necessary to take measures to create a modern legal framework, as well as to promote international integration processes.
High costs of business projects. This refers to excessive spending on fixed assets, wages, rent of premises and territories, as well as related production costs. It is necessary to carry out a set of measures to reduce the corresponding costs.

External factors

General economic downturn in Europe. The development of the world economy is cyclical and is accompanied by ups and downs.
Decrease in exports (both in value and physical terms). Caused by both the European economic downturn and the exhaustion of the resource-based model for the development of the national economy.

So forto overcome the crisis in the economy, it is necessary to reorient the industry, improve the investment climate, and also hope for an improvement in the overall trends in the global economy.