Sun. Sep 25th, 2022

GDP (Gross Domestic Product)

What is GDP? How can we calculate it?  What is the exact meaning of GDP? and why do we learn about it? let us going to discover these questions. First of all, we explore what Gross Domestic Product is.


Definition of gross domestic product(GDP)

“GDP, or gross domestic product, is the market value of the final goods and services produced within a country in a given time period”.

We can divide this definition into four parts:

Market value

Final goods and services

Produced within a county

In a given time period

And now we are exploring all these four parts one by one

1-Market value

We are measuring all production as well as must add the production of bananas. Tomatoes

And hardware like computers or computer Accessories vegetables and fruits. Only counting the items does not get us very far, for example, which is the great total production: 500 bananas and 1000 oranges Or 1000 bananas and 500 oranges.

In GDP answer to this question is valuing items at their market value-the prices at which items are traded in the market. If the price of one banana is 1 cent, then the market value of 500 bananas is $5. Meanwhile, if the price of 1 tomato is 1 cent, then the market value of 1000 tomatoes is $10.

If we use market prices to value production, we can add bananas and tomatoes together.  the market value of 500 bananas and 1000 tomatoes is ($5+$10)=$15.

2-Final goods and services

in the calculation of GDP, we calculate the values of final goods and services produced final goods or service is an item that is brought by their final user during a specific time period.

Which is an item that is produced by a company and bought by another company and then by a middleman item is in the consumer’s hands. When an item is reached by the consumer the item is called final or finished goods or services.

For example, the Toyota Corolla car is a final product but its wheel is an intermediate good, meanwhile, a Samsung mobile is a final or finished product but its chip is an intermediate product.

If we are added the value of intermediate goods and services produced to the value of finished goods and services, we are counting the same item much time and this miscounting is called double counting. The value of the wheel is already included in the value of the Toyota Corolla car and the value of the chip is already included in the value of the mobile phone.

So many goods can be intermediate goods sometimes and the final good is in other situations, for example. If we are buying corn on a winter day the corn is a final good but if corn is bought from a restaurant for preparing other dishes.

then the corn has become intermediate good. Cousine in the making with corn in the restaurant in final good. So what is a good product from intermediate to final? It depends on its uses.

So if we are buying a secondhand Toyota corolla car, it is not part of the GDP. It is part of GDP which year it is produced.

3-Produced within a country

the only goods and services produced within a country are called its GDP. For example, if iPhone is produced in the USA then IPhone is part of the GDP of the USA. If iPhone is produced in Uk then the iPhone is not part of the GDP of the USA. Meanwhile, if Toyota is produced in japan then Toyota is part of the GDP of Japan, not the USA or other countries.

4-In a given time period

we are measuring GDP,  the value of production in a given time period. It consists of a quarter of a year and is called quarterly GDP data if it consists of a year it is annual GDP data.

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