GROSS DOMESTIC PRODUCT

Gross Domestic Product

Gross Domestic Product

Introduction

GDP is the monetary value of goods and services produced by an economy in a given period. It is also called Gross Domestic Product (GDP). Product refers to added value, internal refers to the production within the boundaries of an economy and GDP refers to the variation not accounted for inventory and depreciation or appreciation of capital (Mankiw, 1989, 17).

Explain why comparing the GDP of various nations might not tell you which nation is better off.

There are three theoretical methods of calculating GDP equivalent: (1) Method of Expenditure, (2) Method of Income and (3) Value Added method.

Expenditure Method

GDP is the sum of all expenditures made for the purchase of goods and services produced within an economy, i.e. excludes purchases of intermediate goods or services and imported goods or services.

Added Value Method

GDP is the sum of the aggregate values ??of the various stages of production and in all sectors of the economy. The added value that adds a company in the process of production is equal to the value of production minus the value of intermediate goods.

Income Method

GDP is the sum of the incomes of employees, the company earnings and taxes less subsidies. The difference between the value of a company's production and intermediate goods is one of the following three destinations: the workers in the form of labor income in the form of corporate or state benefits in the form of indirect taxes such as VAT.

Each nation has a different amount of expenditures and income; therefore, we cannot tell you which nation is better off by calculating GDP.

Why is it important to grow GDP?

If the production of nation firms does not grow at a faster pace means that you are not investing in new businesses, and therefore job creation does not grow ...