Gross domestic product and net domestic product

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:42

Gross domestic product and net domestic product are among the most important macroeconomic indicators. GDP shows the total market value of all services and goods produced within a country within 1 year. It is determined for all sectors of the economy and does not depend on what share of the output was exported, sold or accumulated within the country. Usually, the domestic product is indicated in the national currency of the state. It can also be determined in US dollars.

The author of this term is Simon Kuznets, who proposed it in 1934 (USA). In 1971 he received the Nobel Prize. A closely related concept is the gross national product.

What is net domestic

This term refers to the difference between GDP and the valuecapital consumption:

GDP=GDP - QAP.

This is the formula for calculating net domestic product. In the same way, the value of national income (ND) is determined. It turns out that ND=FVP.

GDP definitions

Gross domestic product is the total value of all goods and services produced within a country's borders over a period of 1 year. It is defined as the sum of value added across all branches of the economy (or sectors) and net taxes on products.

This term is easily deciphered. The word "gross" (gross) means the sum of all values, and the word "domestic" indicates that all goods were produced within the country. This is the explanation of what is GDP in the economy in simple terms.

It is important to take into account that such an indicator is determined for all industries located within the borders of the state, even if they belong to foreign citizens and companies.

In the economy, GDP is considered one of the key indicators that quantitatively reflects its size and development. If the gross domestic product is growing, it means that the economy is developing. However, this does not always mean the development of the country as a whole.

Structure and size of GDP

The structure of gross domestic product varies dramatically between different states, and also changes over time. In many countries, income from the sale of raw materials plays an important role in it. These include the states of the Persian Gulf, some of Latin America, Russia and some other states. In other countries, such as Japan, China and the US, end product production is more important. There are also countries where tourism or banking services make a big contribution to GDP.

Nominal and real

Nominal domestic product is determined in national currency at the current price level. In the presence of inflation, it rises, and in the presence of deflation, on the contrary, it decreases. Thus, it does not always reflect the state of the economy. When determining real GDP, a certain basic price level is taken. The ratio of nominal to real gross domestic product is called the GDP deflator. If the indicator is measured in dollars or euros, then it will be more stable, since these currencies are less subject to inflation. For example, GDP in dollars would be defined as nominal GDP in rubles divided by the number of rubles equal to one dollar.

What is gross national income

Gross National Product (abbreviated GNP) is the total value of goods and services produced by all citizens and companies of the country. In this case, there is a link specifically to the affiliation of producers to a particular country, while the geography of production is not taken into account. This is what distinguishes it from GDP.

What is GDP per person

This indicator is more important in assessing the standard of living of people than the gross domestic product. It is calculated as the ratio of GDP to the number of inhabitants of the country. The higher the population, the more people shareGDP. At the same time, this indicator does not take into account the distribution of the gross domestic product among different citizens. Thus, it is not sufficient for an objective assessment of the general level of people's well-being and the level of poverty in the country.

Which countries have the largest and smallest GDP

Traditionally, the United States ranks first in terms of GDP. Smaller, but also huge, is Saudi Arabia's GDP. This is due to the proceeds from oil production in this country. Pretty high domestic product in Japan, China, Germany, France, UK, Australia.

The lowest GDP in Central and East Africa. This is due to the scarcity of natural resources and the backwardness of these countries.

Conclusion

Thus, the net domestic product, as well as the gross domestic product, give a quantitative description of the state of the country's economy and the dynamics of its development, but do not always indicate the development of the state as a whole. GDP can be determined in nominal monetary terms or in a more objective form, but always for a period of 1 year. The structure of GDP is unique for each country. The size of this indicator also varies greatly. Net domestic product cannot be determined without knowing the gross.