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Gross domestic product
Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic activity of a country or region. The major components of GDP are consumption, government spending, net exports (exports minus imports), and investment. Changing any of these factors can increase the size of the economy. For example, population growth through mass immigration can raise consumption and demand for public services, thereby contributing to GDP growth. However, GDP is not a measure of overall standard of living or well-being, as it does not account for how income is distributed among the population. A country may rank high in GDP but still experience jobless growth depending on its planned economic structure and strategies. Dividing total GDP by the population gives an idealized rough measure of GDP per capita. Several national and international economic organizations, such as the OECD and the International Monetary Fund, maintain their own definitions of GDP.
GDP is often used as a metric for international comparisons as well as a broad measure of economic progress. It serves as a statistical indicator of national development and progress. Total GDP can also be broken down into the contribution of each industry or sector of the economy. Nominal GDP is useful when comparing national economies on the international market using current exchange rate. To compare economies over time inflation can be adjusted by comparing real instead of nominal values. For cross-country comparisons, GDP figures are often adjusted for differences in the cost of living using purchasing power parity (PPP). GDP per capita at purchasing power parity can be useful for comparing living standards between nations.
GDP has been criticized for leaving out key externalities, such as resource extraction,[clarification needed] environmental impact and unpaid domestic work. Alternative economic indicators such as doughnut economics use other measures, such as the Human Development Index or Better Life Index, as better approaches to measuring the effect of the economy on human development and well being.
Sir William Petty came up with a concept of GDP, to calculate the tax burden, and argue landlords were unfairly taxed during warfare between the Dutch and the English between 1652 and 1674. Charles Davenant developed the method further in 1695.
The modern concept of GDP was first developed by Simon Kuznets for a 1934 U.S. Congress report, where he warned against its use as a measure of welfare (see below under limitations and criticisms). After the Bretton Woods Conference in 1944, GDP became the main tool for measuring a country's economy. At that time gross national product (GNP) was the preferred estimate, which differed from GDP in that it measured production by a country's citizens at home and abroad rather than its "resident institutional units" (see OECD definition above). The switch from GNP to GDP in the United States occurred in 1991. The role that measurements of GDP played in World War II was crucial to the subsequent political acceptance of GDP values as indicators of national development and progress. A crucial role was played here by the U.S. Department of Commerce under Milton Gilbert where ideas from Kuznets were embedded into institutions.
The history of the concept of GDP should be distinguished from the history of changes in many ways of estimating it. The value added by firms is relatively easy to calculate from their accounts, but the value added by the public sector, by financial industries, and by intangible asset creation is more complex. These activities are increasingly important in developed economies, and the international conventions governing their estimation and their inclusion or exclusion in GDP regularly change in an attempt to keep up with industrial advances. In the words of one academic economist, "The actual number for GDP is, therefore, the product of a vast patchwork of statistics and a complicated set of processes carried out on the raw data to fit them to the conceptual framework."
China officially adopted GDP in 1993 as its indicator of economic performance. Previously, China had relied on a Marxist-inspired national accounting system.
GDP can be determined in three ways, all of which should, theoretically, give the same result. They are the production (or output or value added) approach, the income approach, and the speculated expenditure approach. It is representative of the total output and income within an economy.
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Gross domestic product
Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic activity of a country or region. The major components of GDP are consumption, government spending, net exports (exports minus imports), and investment. Changing any of these factors can increase the size of the economy. For example, population growth through mass immigration can raise consumption and demand for public services, thereby contributing to GDP growth. However, GDP is not a measure of overall standard of living or well-being, as it does not account for how income is distributed among the population. A country may rank high in GDP but still experience jobless growth depending on its planned economic structure and strategies. Dividing total GDP by the population gives an idealized rough measure of GDP per capita. Several national and international economic organizations, such as the OECD and the International Monetary Fund, maintain their own definitions of GDP.
GDP is often used as a metric for international comparisons as well as a broad measure of economic progress. It serves as a statistical indicator of national development and progress. Total GDP can also be broken down into the contribution of each industry or sector of the economy. Nominal GDP is useful when comparing national economies on the international market using current exchange rate. To compare economies over time inflation can be adjusted by comparing real instead of nominal values. For cross-country comparisons, GDP figures are often adjusted for differences in the cost of living using purchasing power parity (PPP). GDP per capita at purchasing power parity can be useful for comparing living standards between nations.
GDP has been criticized for leaving out key externalities, such as resource extraction,[clarification needed] environmental impact and unpaid domestic work. Alternative economic indicators such as doughnut economics use other measures, such as the Human Development Index or Better Life Index, as better approaches to measuring the effect of the economy on human development and well being.
Sir William Petty came up with a concept of GDP, to calculate the tax burden, and argue landlords were unfairly taxed during warfare between the Dutch and the English between 1652 and 1674. Charles Davenant developed the method further in 1695.
The modern concept of GDP was first developed by Simon Kuznets for a 1934 U.S. Congress report, where he warned against its use as a measure of welfare (see below under limitations and criticisms). After the Bretton Woods Conference in 1944, GDP became the main tool for measuring a country's economy. At that time gross national product (GNP) was the preferred estimate, which differed from GDP in that it measured production by a country's citizens at home and abroad rather than its "resident institutional units" (see OECD definition above). The switch from GNP to GDP in the United States occurred in 1991. The role that measurements of GDP played in World War II was crucial to the subsequent political acceptance of GDP values as indicators of national development and progress. A crucial role was played here by the U.S. Department of Commerce under Milton Gilbert where ideas from Kuznets were embedded into institutions.
The history of the concept of GDP should be distinguished from the history of changes in many ways of estimating it. The value added by firms is relatively easy to calculate from their accounts, but the value added by the public sector, by financial industries, and by intangible asset creation is more complex. These activities are increasingly important in developed economies, and the international conventions governing their estimation and their inclusion or exclusion in GDP regularly change in an attempt to keep up with industrial advances. In the words of one academic economist, "The actual number for GDP is, therefore, the product of a vast patchwork of statistics and a complicated set of processes carried out on the raw data to fit them to the conceptual framework."
China officially adopted GDP in 1993 as its indicator of economic performance. Previously, China had relied on a Marxist-inspired national accounting system.
GDP can be determined in three ways, all of which should, theoretically, give the same result. They are the production (or output or value added) approach, the income approach, and the speculated expenditure approach. It is representative of the total output and income within an economy.