1. GROSS DOMESTIC PRODUCT

2. Definition GDP refers to the market value of final goods and services produced in an economy in a given period of time.

3. NOMINAL Vs REAL GDP Value of the final goods is measured by the price of the final good = P * Q. –Above relationship says that the GDP can grow with no change in Q. –Hence P should be kept constant while measuring GDP. (Real GDP)

4. Calculation of Real & Nominal GDP Goods / Services P0P0 Q0Q0 P1P1 Q1Q1 X1X1 240360 X2X2 89010150 X3X3 8010090110 X4X4 7012080130

5. Calculation of GDP: GDP for Base Year = 40*2 + 90*8 + 100*80 + 120 * 70 = 17200 Nominal GDP: (No Constants) GDP = 60*3 + 150*10 + 110*90 + 130*80 = 21980 Real GDP: (Price constant) GDP = 60*2 + 150*8 + 110*80 +130 *70 = 19220

6. Growth in Nominal GDP: Growth GDP n = 21980-17200/17200*100 = 27.79% Growth in Real GDP: Growth GDP r = 19220-17200/17200*100 = 11.74% Deflator: GDP Deflator = GDP n /GDP r * 100 = 21980/19220 * 100 = 114.36 = 14.36%

7. GDP & GNP GDP refers to the value of final goods and services produced within the country. It does not matter if the producers of these goods and services are residents or non-residents. (INFOSYS in U.S) GNP refers to the goods and services produced by the country’s residents. It does not matter in which part of the world the production is taking place, the producers should be Indian residents. (IBM in India)

8. GDP Measurement

9. Expenditure Method Measures the expenditure or total spending on domestically produced final goods and services in an economy. Four Components needed: 1.Consumption Goods: (C) Expenditure on consumption goods like food, clothing etc (Consumer Non-Durables) and Air conditioners, TV’s, Cars etc (Consumer Durables). Services like haircut, laundry and host of other services.

10. 2.Investment Goods: (I) Includes addition to stock of capital like machinery, equipments etc and investment in services like consultancy services and financial services etc. 3.Government Expenditure : (G) Expenditure on final goods and investment goods by the government is taken into consideration. 4.Imports & Exports: (X-M) Expenditure on goods during exports and imports. GDP = C + I + G + (X-M)

11. Output Method This method adds up the value, expressed in market prices, of all goods and services produced in the economy. Eg: A (Produces raw material) 1000 Value added = 1000 B (Uses raw material to produce a product) 1500 Value added = 500 C (Retailer sells the product) 2000 Value added = 500

12. Income Method Factors of production: –Payment for land, say rent (r) –Payment for labor, say wages (w) –Payment for capital, interest (i) –Payment for organization, profit (p)

13. AN EXAMPLE

14. Stage of Production Sales Receipts Cost of Intermediate Products Value AddedFactor Incomes WHEAT240 r + w + i + p FLOUR33249 r + w + i + p DOUGH603327 r + w + i + p BREAD906030 r + w + i + p TOTAL20711790

15. Using Expenditure method: GDP = Sum of sales receipts – Sum of costs of intermediate products =207 – 117 = 90 Using Output Method: GDP = Sum of the value added at each step. = 90 Using Income Method: GDP = 90 = r + w + i + p

16. FACTS

18. According to the data released for the year 2006-2007, India's GDP grew at an impressive 9.2 per cent. The share of different sectors of the economy in India's GDP is as follows: Agriculture - 18.5 %, Industry - 26.4 % and Services - 55.1 %

19. Conclusion In reality, because of different data sources and estimation errors involved, the GDP arrived at through the three different methods give similar but not identical results. Some adjustments, usually, are carried out to arrive at a common measure. Though the end result of all the three methods is a common measure of GDP for the economy. Each method has specific use depending on the purpose of analysis of GDP data.

20. References LINKS –http://www.economywatch.com/world_economy/world-economic- indicators/world-gdp.htmlhttp://www.economywatch.com/world_economy/world-economic- indicators/world-gdp.html –http://www.economicswebinstitute.org/glossary/gdp.htmhttp://www.economicswebinstitute.org/glossary/gdp.htm –http://www.econedlink.org/lessons/index.cfm?lesson=EM225&pa ge=teacherhttp://www.econedlink.org/lessons/index.cfm?lesson=EM225&pa ge=teacher –http://www.cftech.com/BrainBank/FINANCE/GDP.htmlhttp://www.cftech.com/BrainBank/FINANCE/GDP.html BOOKS: –Macro Economic Policy. By, Shyamal Roy.