GDP is calculated per capita only. Components of GDP. Extensive growth factors. These include land, capital, labor, natural resources. Extensive growth occurs due to the use of additional resources: an increase in the number of employees
Gross domestic product(GDP) - the sum of the values of all goods and services produced in the state. Indicated in US dollars. Determined at the end fiscal year... By calculating GDP annually, you can track the development of the economy. The change in the indicator can indicate how successful the state has been economic policy... Knowledge of how to calculate GDP will help to understand the course of many macroeconomic processes.
GDP is found in one of three ways.
End-use method or calculation of gross domestic product by expenditure
By calculating GDP indicator in this way, you need to add up the costs of all participants in the economic process, namely:
- Consumer expenses of citizens (All expenses that are carried out by households, as well as the state for the maintenance budgetary organizations, expenses of non-profit firms for the purchase of products for personal and joint use, if organizations serve households; at the same time, expenses are long-term, for example, buying a car, and short-term - buying products, expenses for the purchase of services, including on credit, are separately allocated);
- The aggregate of investments in the economy (Investments are funds invested by an organization or an individual, for example, in the purchase of equipment, as well as the purchase of real estate or software for the operation of a company. The exchange of assets is not considered an investment, but an acquisition Money Is saving. Also, the purchase of securities in itself is not considered an investment if subsequently the company does not use this proceeds to modernize production, etc.)
- Government expenditures (Funds spent by the state on the purchase of final goods. This includes the payment of salaries to public sector employees and the purchase of weapons, as well as government investments.)
- Net exports (is the difference between the total value of imported and exported products)
We get the GDP formula for calculating expenditures, which determines GDP method end use:
GDP = C + I + G + Xn
In the formula for costs: C - consumer spending, I - investment, G - government. costs and X is the indicator of net exports (we subtract the amount of imported ones from the total value of exported goods).
Production method or finding the sum of all added values
To calculate the GDP indicator in this way, it is required to add up all the added value of goods manufactured in the country. Value added is one that does not include market prices for products purchased to make a final product or service, hence the value that arose in production. Otherwise, when calculating GDP, some goods / services will be counted twice, and the result will be significantly distorted upward.
Advantage this method in that it allows you to assess the role of a certain production, organization in the structure of state GDP. To find the DS (value added), you need to subtract the amount spent on the products needed in production from the profit received during the sale.
We get the following formula for calculating GDP:
GDP = DS + NPI - C, where: DS - value added, NPI - tax on production and imports, and C - subsidies on imports and manufacturing.
Method of accounting for GDP by income or pay-as-you-go method
We get the following formula for calculating GDP:
GDP = ZP + R + Pr + VD + KS + A - PFD (from abroad)
in which: salary is the funds spent on employee benefits, P is the cost of rent, Pr is income from interest on, KS is indirect taxes, A is depreciation and PFD is foreign net factor income.
GDP is calculated in money, so it is necessary to take into account the dynamics of prices during the reporting period. Therefore, there are two types of GDP.
The nominal is determined in terms of current prices. It can increase in two cases: with an increase in production volumes and with an increase in prices. Real GDP is calculated taking into account the prices of the base period - the one that is taken as the basis. For example, in the United States - 1996.
Real GDP is an indicator of the volume of production, since an increase or decrease in prices does not change its indicator. To find real GDP it is necessary to adjust the nominal by the price index. For this, the indicator of nominal GDP must be divided by the price index, which is equal to the ratio of prices in the considered year to prices in the base year.
To bring the nominal GDP to the real indicator, you need to know the index consumer prices or . The CPI is influenced by the cost of the 300 most commonly purchased goods, and the GDP deflator summarizes the change in prices for all goods.
Quickly explain what GDP is in the economy, in simple words and without the use of specific terms - not an easy task. But the very essence can be conveyed to real examples especially considering economic processes taking place in our country in recent years.
How is economics related to politics?
Politics and economics are two inextricably linked processes, in this tandem the first follows from the second:
- Stable economic model entails well-fed and calm years;
- Any economic crisis heats up the population's discontent towards the ruling elite;
- Historical examples prove the cyclical nature of the events taking place - each crisis and each "stagnation" develops according to a practically identical model;
- The level of support for the authorities directly depends on the well-being of the population, if heavy artillery is not used in the form of propaganda;
- Most wars began during or immediately after severe economic shocks.
All current political trends are dictated exclusively by economic motives. In any country, as long as people are fed and dressed, protest phenomena are reduced to a minimum. As soon as real financial problems arise, yesterday's tacit consent of the crowd turns into a violent expression of discontent.
What is economics in simple terms?
Society interacts:
- Conducts business activities;
- Produces anything;
- Redistributes material resources;
- Conducts trade.
All these processes can take place within one country or spread to a number of independent states, with their own economy - a set of economic relations.
We live in postindustrial society where the main part of the economy is the service market. The factories still inspire awe and respect, but they do not feed the bulk of the country's population.
Thanks to the presence of the economy as a science:
- We can assess the real state of affairs in the country;
- New solutions are being developed that allow for more efficient management of the production and distribution of goods and services;
- Society is developing and does not stand still.
A strong economy means:
- Sustainable model of market relations;
- A prosperous system capable of ensuring the well-being of citizens;
- Constantly developing production;
- Active use of the latest technologies.
If any economic crisis or external blow is capable of destroying the entire system, then some mistake was made during its creation.
What is GDP?
The abbreviation stands for:
- V- gross;
- V- internal;
- NS- product.
But this does not add much clarity. And the definition is simple - the cost of all goods and services that were produced by the country for the year.
- All oil sold and all gas pumped;
- All delivered tanks and wagons;
- All built nuclear power plants;
- All grain sold;
- All income received from consulting services.
Only companies located on the territory of the country are taken into account, excluding foreign investments.
Why define the indicator itself? There are several options:
- Monitor changes in the country's income in dynamics;
- Observe which industries are developing and which spheres only bring losses;
- Build a policy;
- Compare your performance with your “neighbors” and potential opponents.
There are many options for using information. And it's even more interesting to know how everyone else is doing. So you can track changes in the region - who will become the new leader, and who in the country in the near future may have protest actions or even full-fledged riots. Intelligence analysts are eating their bread for a reason.
What is the economy for?
The economy does not exist for any purpose, it just is:
- A factory located near your home produces steam cookers;
- The intermediary buys out its products from the plant at a bargain price;
- The goods are sent through a chain of dealers;
- Steamers reach the shelves of small stores and the end customer - with a huge mark-up.
And all this - a system consisting of manufacturers, customers, resellers and end users, is an economy. Or rather, a part of it, if you take it in a global sense.
Theoretically, in any country economic system should:
- Ensure an adequate level of state revenue;
- Upgrade to be competitive;
- Create links with other states for more efficient work;
- Withstand periodic downturns.
V welfare state, the main goal of the economy is to provide a decent life for all citizens. So that there are no needy people and everyone receives a well-deserved reward for their work. But only the Scandinavians were able to build at least something similar, so we can only dream and wait for the future.
What is command economy?
This concept means one of the options for managing the economy, which took place in the Union:
- Rigid centralization of all processes, their "tie-up" in the capital;
- State ownership of most industries;
- Using the directive method.
If you look closely, you can find a lot in common with the planned economy. But as real life has shown, market relations regulate such issues much better. Yes, keeping some enterprises in state ownership is a necessary evil when it comes to strategic directions.
But otherwise, thanks to private property:
- Competition among manufacturers is growing;
- New technologies are being introduced;
- Facilitates legal control over compliance with the norms;
- The buyer receives the goods in larger quantities and at lower prices.
You can scold for a long time and tediously modern economy recalling the "well-fed Soviet times". But if you compare the standard of living, it's elementary to look at photographs of an ordinary Soviet and the same modern apartment- everything will fall into place.
Today command economy can be found in a number of former Soviet Republics and in some Asian countries. The West does not intend to resort to such practice in the foreseeable future.
Importance of GDP for the country
GDP - total cost of everything that the country has produced in a year:
- Measured in dollars for ease of comparison;
- Within the state, data is provided in national currency;
- Recalculated once a year;
- Formed by private and public revenues;
- Reflects the state of the economy of the state.
It is not entirely correct to take only numbers for assessment when there are other indicators. It is interesting to go through the industries in order to have an idea of what exactly this or that state receives the bulk of the income from.
The Middle East is a good example of how you can get money from the sale of oil and never build strong economy... Numbers with a large number of zeros should not be misleading, in this case, because social crises and civil wars in these countries are not uncommon. Assume this for developed economy- extremely difficult.
If they do not want to explain to you what GDP is in the economy in simple words, they want to deceive you. Any, even the most difficult thing, can be "decomposed" into accessible definitions, which we did in this article.
Video about the role of GDP in the country's economy
In this video, economist Leonid Avakov will explain in an accessible way what constitutes the GDP of any country, and will show a diagram of how it all “works”:
GDP, also known as gross domestic product, is, by definition, the market value of all final (that is, directly consumed, and not those that were used to create final product) goods and services produced in the territory of a given country (it does not matter where the factors used to produce this good came from) in one year.
Based on the definition, GDP is counted in three ways: by expenditure, by income, and by value added.
I will start with the first method, because it has been the longest term used in all universities. The formula is: Y = C + G + I + Ex - Im
Now in order.
Y- this is the very GDP that we so want to get.
C- consumption, it is consumption, this is all the expenses of households (that is, not firms, not the state, not foreign agents) for the consumption of various goods and services. It should be noted that this indicator also includes the consumption of imported goods, that is, those produced in other countries, but more on that later.
G- government expenditure, government spending... These are, obviously, expenses that are aimed at the functioning of the state and government bodies. These are the costs of maintaining the control bodies themselves, and the costs of national defense, technology development, and so on. This also includes the cost of imported goods and services purchased by the government.
I- investment, that is, investments. These are all the funds that investors invest in various securities, real estate and so on, which in the future can bring them profit. Again, this figure also includes the "imported" part.
Ex- exports, that is, export. Well, here, too, everything is very transparent: this is the cost of everything that foreigners buy from us.
And finally Im- aka import. We subtract it precisely in order not to take into account in GDP the cost of goods produced not in our beautiful country. It is difficult to isolate the very “foreign” part from the statistical data used to calculate the GDP, so we simply take the cost of all imported pieces and subtract it. (Also, this separation is convenient for further modeling.)
The second calculation method, in my opinion, does not need any special explanation. This method, as far as I know, is more often used in reality.
The formula is: GDP = wage+ rents + interest payments + corporate profits + depreciation + indirect taxes - subsidies - net factor income from abroad (NPI) (or + net factor income of foreigners working in a given country (NPF))
The indicators are calculated statistically, and most of them do not need special comments - everything is clear from the name. I will only explain who the ChDiF and ChDF are.
ChDiF is the factor income of our citizens in other countries. And the CHDF is the income of foreigners working with us.
How do economists calculate all of these indicators? With the help of statistical data, which they diligently collect all year, and then add up. Of course, statistics do not take into account transactions of the shadow economy, there are errors and so on, but in general, they think like this.
The last method, in my opinion, is the most confusing. The formula is simple: GDP = the sum of all value added, where Value added of the firm = income of the firm - the intermediate cost of producing a good or service.
In essence, this is how much each firm "welds". Honestly, I do not know how in real life this is statistically calculated, since in modern world it is really difficult, but since it is, it must be described.
Expenditures in the economy take a variety of forms. The Smith family eat breakfast at a restaurant, General Motors is building a new car plant, the Navy orders a new submarine, and British Airways buys a new airliner from Boeing. GDP includes all types of spending on payments for goods and services produced domestically.
To better understand the functioning of the economy in the context of its limited resources, scientists analyze the composition of GDP by different types costs as follows. The value of GDP (denoted as Y) is broken down into four main components: consumption (C), investment (I), government procurement (G), and net exports (NX):
This equation is essentially an identity, valid for any values of the variables included in it, since every dollar spent, taken into account in GDP, is reflected in one of four cost components.
Consider one at a time a simple example each component of the GDP.
Consumption represents household spending on goods and services, such as the Smith family's payment for breakfast at a restaurant.
Investments- expenses for the purchase of equipment, real estate, as in the case of the construction of a new plant by General Motors. This also includes the cost of acquiring a new home, which formally represents household expenditure, but is essentially an investment.
State procurements includes the expenditures of public authorities at all levels for the purchase of goods and services they need, such as the purchase of a new submarine by the Navy.
Net export represents the difference between the amounts of proceeds received from the sale of domestic products in the foreign market (export) and purchases of foreign goods (imports). When a domestic firm sells its products overseas, as in the deal between US Boeing and British Airways, US net exports increase.
The definition of “net” emphasizes the fact that when calculating this parameter, the volume of imports is subtracted from the volume of exports, since the imports of goods and services are included in other components of GDP. For example, let's imagine that an American buys a Swedish Volvo car for $ 30,000, which increases consumption by $ 30,000, since the purchase of a car is a consumer expense. In other words, net exports include the value of goods and services produced abroad with a minus sign, as they are included in consumption, investment, or government procurement with a plus sign. Thus, when a firm, household, or government pays for a good or service from a foreign producer, the value of net exports decreases, but since the share of consumption, investment, or government procurement increases, the total value of GDP does not change.
The meaning of the concept of public procurement also requires a little explanation. For example, when the government pays a military salary, that money will certainly go into government procurement. But where should the funds used for the payment of pensions under the program be attributed? social insurance? These costs are commonly referred to as transfer payments because they are not payments for the ongoing production of goods and services. From a macroeconomic point of view, transfer payments are something like tax relief... Like tax payments, they change household income, but they do not affect output in any way. Since it takes into account the income (and expenses) received from the production of goods and services, transfer payments are not considered as part of public procurement.
The table presents structure of GDP USA for 1996. This year, its volume amounted to $ 7.5 trillion, which, with a population of 265 million people, amounted to $ 28,589 per capita. Consumption accounts for about two-thirds of the total volume of GDP, that is, almost $ 19,441 per capita. The average American's investment and government purchases were $ 4,211 and $ 5,309, respectively. Net exports were negative at $ 373 per person, indicating that Americans were buying more foreign products than they were selling overseas.
Total, $ billion | Per capita $ | To the total in% | |
Gdp | 7576 | 28589 | 100 |
Consumption | 5152 | 19441 | 68 |
Investments | 1116 | 4211 | 15 |
State procurements | 1407 | 5309 | 19 |
Net export | -99 | -373 | -1 |
Indicator reflecting the total market value of all domestically produced final services and goods in one year.
GDP includes services and goods for the final consumer, savings and exports. Moreover, due to what factors these goods (services) were produced does not matter.
For domestic use, GDP is usually expressed in local currency. To present data to the world level, the indicator is converted into foreign currency at the exchange rate. There is also a practice of recalculation in terms of PPP (parity purchasing power) for more detailed comparisons.
GDP acquired the status of the main macroeconomic indicator in 1991. This was necessary for the indicator to be compatible with the UN system of national accounts (SNA). Previously, the base indicator was GNP (gross national product).
Types of GDP
In economic practice, there are two types of GDP:- Nominal - the cost of all services and goods for consumption in market prices... As a consequence, it depends on the rise or fall of the price and income index. Under inflation, the nominal GDP always grows; under deflation, the direction is reversed.
- Real - takes into account only the real growth of production, without taking into account the increase or decrease in prices. It is calculated by dividing Nominal GDP the level of inflation (or deflation). In other words, real GDP is nominal GDP, adjusted by the price index.
How to calculate GDP
Experts have developed three methods for calculating the gross domestic product.By income
GDP by income is the sum of the following indicators, excluding subsidies and net factor income from abroad:- national income;
- depreciation;
- indirect taxes;
- net factor income of foreign workers.
By expenses
GDP by expenditure is the sum of the following indicators:- final consumption;
- gross capital formation (investment in corporations);
- government spending;
- net exports (exports minus imports).
Added value
GDP at value added in practice is more often referred to as production method... It is calculated as the sum of the added values of all enterprises. The added value is found as the difference between the firm's income and the intermediate cost of producing a good / service. To obtain the total value added, it is necessary to subtract the total value of intermediate products and indirect taxes from the total level of output.Criticism of GDP as a macroeconomic indicator
At the dawn of the introduction of the GDP indicator into research use, the community of respected economists warned that the use of this indicator could lead to errors in the analysis. economic situation... The author of the term himself, Simon Kuznets, said that GDP growth cannot be equated with economic growth and improved social well-being.Despite warnings, most countries are currently measuring growth rates economic development through GDP.
The main reason for the inadmissibility lies in the fact that the GDP indicator takes into account only monetary transactions production-related. In fact, he does not fully reveal the picture.