GDP Full Form

History, How to Calculate GDP, Formulas & Methods to measure the GDP

GDP: Gross Domestic Product

GDP stands for Gross Domestic Product. This includes the total market value of all the products, goods and services produced within a country in given time duration. It is actually used to measure the size of an economy and overall growth or decline in the nation’s economy. It indicates that the economic health of a country as well as it also specifies the living standard of the people of a specific country, i.e. as the GDP increases the living standard of the people of that particular country increases. A country having good GDP is considered to be a good country for living. In India, there are three main sectors which contribute to GDP; industry, service sector and agriculture including allied services.

History

The basic idea of GDP was given by William Petty to defend landlords against unfair taxation between the English and the Dutch between the years 1652 and 1674. Later, this method was further developed by Charles Davenant. Its modern theory was first to be developed by Simon Kuznets in 1934. After the Bretton Woods conference in 1944, it became the chief tool to measure the economy of a country.

How to calculate GDP

There are many methods to calculate GDP. If the talks are about a simple approach, it will be equal to the total of consumption, gross investment and government spending plus the value of exports, minus imports.

Formula to Calculate GDP:

GDP = COE + GOS + GMI + TP & M ? SP & M   

Or

GDP = private consumption + gross investment + government spending + (exports ? imports)  


Following are the different approaches to calculate GDP:

  • Production approach

  • Income approach

  • Expenditure approach


This is the method used to measure the size of an economy and overall growth or decline in the economy of a nation. This specifically indicates the economic health of a country as well as specifies the living standard of the people of a specific country, i.e. as the GDP is a method for increasing the living standard of the people of that country. A country which has good GDP is considered as a good country for living purposes. In India, we have three main sectors which contribute to GDP; industry, service sector and agriculture including allied services. GDP is the original indicator to determine the growth of a country’s economy. There are many approaches to calculate GDP. If we talk about a simple approach, it is equal to the total of private consumption, gross investment and government spending plus the value of exports, minus imports i.e. the formula to calculate as GDP = private consumption + gross investment + government spending + (exports – imports).


GDP can be measured by three methods, namely,


1. Output Method: This measures the monetary or market value of all the goods and services produced within the borders of the country. In order to avoid a distorted measure of GDP due to price level changes, GDP at constant prices of real GDP is computed. GDP (as per output method) = Real GDP (GDP at constant prices) – Taxes + Subsidies.

2. Expenditure Method: This measures the total expenditure incurred by all entities on goods and services within the domestic boundaries of a country. GDP (as per expenditure method) = C + I + G + (X-IM) C: Consumption expenditure, I: Investment expenditure, G: Government spending and (X-IM): Exports minus imports, that is, net exports.

3. Income Method: It measures the total income earned by the factors of production, that is, labour and capital within the domestic boundaries of a country. GDP (as per income method) = GDP at factor cost + Taxes – Subsidies.


FAQ (Frequently Asked Questions)

1. What are the 3 Types of GDP?

Types of Gross Domestic Product (GDP)

Real Gross Domestic Product. Real GDP is the GDP after inflation has been taken into account.

  • Nominal Gross Domestic Product. Nominal GDP is the GDP at current prices (i.e. with inflation).

  • Gross National Product (GNP)

2. Which Country has the Highest GDP?

According to the International Monetary Fund, these are the highest-ranking countries in the world in nominal GDP:

  1. United States (GDP: 20.49 trillion)

  2. China (GDP: 13.4 trillion)

  3. Japan: (GDP: 4.97 trillion)

  4. Germany: (GDP: 4.00 trillion)

  5. United Kingdom: (GDP: 2.83 trillion)

  6. France: (GDP: 2.78 trillion)

  7. India: (GDP: 2.72 trillion)

  8. Italy: (GDP: 2.07 trillion)

  9. Brazil: (GDP: 1.87 trillion)

  10. Canada: (GDP: 1.71 trillion)