What is GDP?
The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year.For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.
Measuring GDP is complicated (which is why we leave it to the economists), but at its most basic, the calculation can be done in one of two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total.
The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports.
As one can imagine, economic production and growth, what GDP represents, has a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labor to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It's not hard to understand why: a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.
GDP increases when you buy toothpaste, but if someone buys a herbal brush(branches of trees) from a poor, then GDP does not increase.
When you go to a large hospital and buy a medicine of 500 rupees, the GDP increases but if you treat your home with Giloy Neem or Cow-urine, then the GDP does not increase.
When you drink milk in your home, that doesn't increase GDP but if you drink packed milk, then GDP increases.
When you grow vegetables in your home, GDP does not increase, but when you go to a large AC mall and buy 10-day stale vegetables, then GDP increases.
When you serve mother-cow in your home, then GDP does not increase. But when the butchers cutting the same cow and sell leather meat, then the GDP increases.
Measuring GDP is complicated (which is why we leave it to the economists), but at its most basic, the calculation can be done in one of two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total.
The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports.
As one can imagine, economic production and growth, what GDP represents, has a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labor to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It's not hard to understand why: a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.
And How can we know GDP decreased, GDP increased?
GDP increases when you buy toothpaste, but if someone buys a herbal brush(branches of trees) from a poor, then GDP does not increase.
When you drink milk in your home, that doesn't increase GDP but if you drink packed milk, then GDP increases.
When you grow vegetables in your home, GDP does not increase, but when you go to a large AC mall and buy 10-day stale vegetables, then GDP increases.
When you serve mother-cow in your home, then GDP does not increase. But when the butchers cutting the same cow and sell leather meat, then the GDP increases.
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