What is gross domestic product (GDP). What is GDP and how is it measured? What is gdp in simple words decoding

GDP is often mentioned in the media. This concept is used by officials at various levels when commenting on the level of development of the state’s economy over a certain period. Let's figure out what GDP is and what impact this indicator has on the life of an ordinary citizen.

What is GDP

GDP stands for "gross domestic product." In simple words, GDP is the total value of goods, products and services that were produced in the state in one year. GDP is an indicator of the scale and success of the economy of a particular state.

Economists study a country's GDP and draw conclusions regarding its economic prosperity. When this indicator shows an increase, it means that the country has begun to produce more diverse goods and provide services.

An increase in GDP signals that the country's economy is on the rise, since operating plants, factories, the mining industry, and the service sector pay taxes to the treasury, which means the country as a whole is becoming richer.

A decrease in GDP gives a signal to investors that the economy is stagnating and producer incomes have decreased.

The size of GDP does not depend on the size of the country, but only on the potential and scale of its economy. For example, this figure in the smallest European country Luxembourg (area 2,586 m2, population 576,249 people) is $103,199 per capita, that is, every Luxembourger has this income per year.

What is the situation with this indicator in Kazakhstan? According to the World Bank, the country earned $133.65 billion in 2016, that is, the income of each Kazakhstani was $7,453. In terms of economic development, Kazakhstan is in 54th place in the world ranking, but in terms of population income it is in 74th place.

How does GDP affect citizens' salaries? The more goods a country produces, the greater the contributions to the budget. Salaries for doctors and teachers are paid from the state treasury, social payments are made to pensioners, etc. If this economic indicator is high, then salaries also increase.

However, there is one “but”. This is inflation. Often GDP is higher than last year, and people are poorer because inflation has increased significantly. For example, a family of three earned 10 thousand dollars in 2015, and 10.5 thousand in 2016. Their income seems to have increased. But in 2016, inflation was 7.4%. That is, income increased by 5%, and due to inflation the family became poorer by 2.4%.

The Minister of Economy of Kazakhstan, Timur Suleimenov, identified priority sectors, thanks to which the country’s GDP will increase in 2018:

oil production;
transit of petroleum products;
manufacturing industry;
infrastructure development.

According to preliminary estimates, this figure, compared to 2017, should increase by 3.1% in 2018.

What is GNP and how does it differ from GDP?

GNP is the gross national product. In other words, this is the value of the national economy, which develops both within the country and abroad. That is, this is the cost of products and services that are produced in the country and in the territories of other states. And GDP is the market value of everything that was produced exclusively within the country.

The concept of GNP includes:

services and products produced abroad but by domestic producers;
financial transactions (businessmen buy stocks, bonds, etc.);
transferred funds (transfers, transfer of property rights, pensions, scholarships).

It turns out that the GNP indicator includes profits that were transferred to the national treasury from other countries, from investments in the economies of other powers, and the wages of those citizens who work abroad.

If GDP indicates the well-being of citizens, then GNP is a statistical (monetary) indicator by which one can judge the dynamics of the national economy.

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Gross domestic product(GDP) is the generalized sum of goods and services produced in the state, ready for any use, be it consumption, export or accumulation. This macroeconomic indicator reflects market value products, regardless of the ownership of the actual means of production. Explanation:

gross – denotes the totality of values;
internal indicates territoriality, that is, the creation of goods within the borders of a certain country

If we explain what GDP is in economics in simple words, it is necessary to clarify that GDP collects the results of the functioning of all production facilities in the state, even if they belong to residents of foreign states or are a branch of a foreign company and are under the control of foreign capital.

GDP is one of the key indicators that quantitatively expresses economic development. It illustrates in the most general form how an economy grows as well as how it develops. The reporting period is most often taken to be a year.

The GDP of countries is indicated in national currency and is recalculated at the exchange rate. However, in order to more accurately compare the development of the economies of world states, it is often expressed in terms of purchasing power parity.

The structure of each state's GDP is unique and depends on what part of the income, for example, industry brought to the state in the reporting year. Also, the structure can be characterized in different ways: in terms of production, use and income generation.

The World Bank database contains information on the GDP of all countries in the world, expressed in dollars. Statistics of changes are recorded there throughout the year and updated annually, after which they are published.

GDP per capita

To determine the general level and speed of economic development, they use the GDP of the population, expressed in US dollars. For countries with a different national currency, this indicator is recalculated according to the market exchange rate. GDP has certain disadvantages. Firstly, this is average. Secondly, it does not take into account other criteria for indicators of living standards, which may be better in a country with a lower GDP. Example - level of education, medicine, crime, etc. Thirdly, this indicator does not take into account that the dollar in different countries has different purchasing power. And fourthly, it does not take into account the consequences of increasing economic growth rates, for example, the emergence of environmental problems.

GDP calculation

GDP consists of the final costs of production. The prices of items needed during the production of the final product are not taken into account. For example, in the production of watches, the cost of the strap and glass, which are intermediate goods (necessary for the production of the final one), is not taken into account separately. Otherwise, double counting will occur - some goods will be counted twice and GDP will be greater than actual.

When making calculations, the costs of intermediate goods (purchased for manufacturing) are subtracted from the cost of the final product. The resulting result will be added value (arising during production). Therefore, to calculate GDP, you need to sum up all added values of all producers in the country. It is also correct to add the cost of household services to the amount, but in reality this is impossible to ensure.

To determine GDP, 3 methods are used:

Find the sum of all incomes in the state: wages, interest payments, rent, imports, then subtract gross subsidies.
An end-use method that invests all consumer costs plus investor costs and government purchases. The net export figure is also summed up there. It is calculated by subtracting imports from exports.
Calculation of GDP using the production method (added values of goods from all industries are added up and net taxes are added to them).

Regardless of the method used, the end result should be one figure, since in economic relations the expenditure of one participant is the income of another.

GDP does not include certain income. In return for receiving such funds individual or the organization produces nothing. These are transfer payments. These include pension payments, any social security payments. insurance, any benefits.

The income received by the shadow economy does not apply to GDP, since it is impossible to determine its level. Although statisticians are trying to indirectly estimate at least some part of them.

In each specific situation, it is necessary to determine whether transactions with securities, because, on the one hand, this does not affect production, however, if the funds transferred to borrowers were invested in industry, this will affect GDP. Determining GDP is necessary for subsequent calculation of the rate of increase/decrease in production and other macro economic indicators.

What is the GDP deflator?

Gross domestic product deflator - an index, expressed as a percentage, required to calculate the price level consumer basket for a specific time period. When calculating it, you need to sum up the prices of all goods and services created in the country. excluding imports. The GDP deflator shows changes in economic output over the course of a year. denotes the approximate inflation rate.

To find the GDP deflator, according to the formula, you need to determine the ratio of nominal GDP, in current prices, to real GDP, expressed in prices of the base period. The result obtained is converted into percentages. When the indicator exceeds one (100%), we can talk about an increase in the inflation rate; when the deflator is less than 100%, inflation decreases.

Difference between GDP and GNP

These indicators are similar, but have one fundamental difference. GDP is the total value of products manufactured within a state, while GNP or gross national product is the total value of all goods and services produced by national enterprises, regardless of their location.

Therefore, to find out GDP, you need to subtract from GNP the difference in profits received by the state from abroad and those that foreign resident investors received in the state.

GDP indicators by country for 2019

GDP of countries according to PPP 2016-2018

Place

At the core economic activity Any country must create and increase its gross domestic product. This indicator determines the level of development of the economy.

Explaining myself in simple language, the country's GDP is not the initials of our president, but an economically significant value that shows the level of development of the country over a certain period of time. The indicator displays the total cost of tangible and intangible goods produced and sold to the end consumer during the reporting year.

You can explain what GDP is in simple words using the example of an individual family, which, in addition to its main job, is engaged in household farming. Wage family for the year amounted to 950,000 rubles. They also grew and sold vegetables worth 200,000 rubles. Minus the cost of purchasing raw materials, the income from the sale amounted to 150,000 rubles. Now we add the results obtained and get the annual GDP of this family equal to 1,100,000 rubles. And, it would seem, everything is simple, but economics is a serious matter, and its indicator is not based on addition alone. We'll talk about this further.

Why do you need to calculate GDP?

The growth of GDP in the economy indicates the effective work of the state. If it grows systematically, then the economic indicator improves. The number of enterprises is increasing, and existing ones are operating more stably. Along with the growth of profits, the national currency strengthens. If the GDP indicator decreases, this means a drop in the level of production, a reduction in jobs and a deterioration in the well-being of citizens. That is why this indicator is so important for the government of the country, because it speaks about the well-being of the population and the solvency of each consumer.

The country's GDP parameter also affects stock markets, exchange rates, and monetary policy. Experts note the dependence of the unemployment rate on GDP growth rates. If it increases by at least 2%, then the number of the country’s unemployed population remains motionless, and if the value reaches 3%, then unemployment decreases by approximately 0.6%.

Analyzing from the point of view of changes in the value of GDP, it must be recognized that the number of people employed at work directly affects the actual volume of the macroeconomy.

For comparative purposes, GDP calculations can be made in the following currencies.

Russian ruble;
U.S. dollars;
any other currency.

Most often, economists provide information in national monetary terms. But if necessary, the assessment can be carried out with any other currency taken at the exchange rate.

Types and methods of calculating gross product

To make the calculation correctly, you must first understand what is included in GDP. To calculate this indicator, only the final product is taken. An example would be delicious bun, which consists of milk, flour, eggs, sugar and yeast. To calculate gross income, we will take only the cost of selling the bakery product. And all other ingredients are considered intermediate raw materials. This is to ensure that goods in the country are not counted twice.

Also, the gross product does not include some income: social benefits, pensions, etc.

It is also impossible to determine the contribution of the shadow economy, although statisticians still try to include some amount here.

There are three main ways to calculate gross product.

By income. This includes employee salaries, total profit and mixed income, depreciation, and rent. To calculate, all indicators are summed up.
By expenses. This means identifying the total amount of expenditure spent on consumption. This includes capital acquired through investment, net exports, and government spending.
Production method. Calculations are made by adding the value added of all industries and net taxes.

Regardless of the technology chosen, the sum of the macroeconomic indicator should be the same. After all, the expenditure of one sector is equal to the income of another.

Nominal domestic product

Using various calculation methods, the country's economists are trying to find out how efficiently intra-economic activities are carried out, assess national income, and identify priority macroeconomic trends.

There are several ways to calculate this: according to purchasing power, real and nominal GDP. The difference between them is the computing system itself.

Nominal GDP is called GDP, the calculation of which does not affect inflation and price increases in the country. It is determined by adding the final types of products at prices current for a given period of time.

An example of this calculation can be considered in a small trading company that produced 60 units in 2001. teapots at a price of 50 rubles, and 40 pcs. mugs at a price of 25 rubles.

We calculate the nominal gross product: 60*50+40*25=4000.

Let’s compare with 2004, where 300 teapots were produced, with a selling price of 55 rubles, and 80 mugs. 30 rub. We calculate: 300*55+80*30=18900.

This means that GDP growth in monetary terms amounted to 14,900 rubles.

But over the years there has been an increase in inflation, which means that reality is presented in a different light. And here RVP comes to the rescue, which stands for real gross product.

The concept of real GDP

Unlike general GDP, real GDP reflects a more specific picture of the state of all sectors of the economy. In simple words, the calculation is carried out adjusted for the percentage of inflation or deflation at prices of a fixed year.

To find out the current state of affairs in the country's economy, you need to make an adjustment to the nominal value of the gross product. This can be done using the deflator and the CPI.

The abbreviation stands for consumer price index and means the ratio between the price of goods and services of a given year with the price of the same products in the base period.

Let's consider specific example. In 2000, the value of the market basket was $50, and in 2001 it was $64. In this case, the CPI would be equal to 128%.

A deflator is a value that is necessary for the accurate calculation of economic parameters expressed in monetary terms. Its main purpose is to adjust the data to move from the general price to the real price. This is a kind of barometer of changes in profitability.

The advantage of this computing technology is:

products imported from other countries are not considered;
the period of the current year is taken as the basis for pricing;
pricing policy is based on the assortment of a particular state;
prices for new products are taken into account.

The deflator arose as a result of the need to compare the values of different years in relation to the underlying basis. Each country has its own base year. The coefficient is calculated as a percentage and expressed as the ratio of the nominal value to the real value.

An example of calculating real GDP can be found here:

Calculation based on other criteria

Many experts consider it more relevant and correct to calculate gross income according to PPP, which stands for purchasing power parity. To explain in more understandable terms, a certain set of goods and services is valued in two monetary units at once.

If this theory is translated into practice, it will look like this: you can buy a delicious pizza in Russia for 70 rubles, and in the USA for $2. To calculate the PPP you need 70/2=35. This means that the national currency has a purchasing power ratio of 1:35.

GDP per capita allows us to reflect the effectiveness of the state in terms of each citizen. This is a kind of indicator of the standard of living of each of us. Its calculation includes all sectors of production and services, investments, expenses, exports and imports.

The indicator is calculated by dividing total income by population size.

If we take 2016, then the GDP per capita was only $7,742.58, which corresponds to 72nd place in the ranking of all countries. The first place of honor belongs to a small state called Luxembourg - $ 104,359.32. The last place is occupied by South Sudan – $245.9.

Keep in mind that the macroeconomic value is influenced by many factors, from the foreign policy situation to the internal state of the country.

To define such a concept as GDP, there is absolutely no need to use a lot of complex terms and formulations. Simple, understandable words are quite suitable for this purpose. So, let's try to decide what GDP is and why this indicator is needed.

First of all, it should be noted that the term GDP or gross domestic product of a country is used to determine the rate economic development any state.

In simple terms, GDP is the total value of goods, works and services that were produced and provided in the territory of one country during the year.

This indicator was first calculated in the 30s of the 20th century by economist Simon Kuznets. Subsequently, the specialist received the Nobel Prize.

Today, two important indicators are used in the economic sphere: GDP and GNP. The concepts differ from each other, although they are aimed at determining the economic indicators of the state. When calculating the gross domestic product, financial indicators are taken into account that do not depend on the nationality of the enterprises involved in the production of products. The most important thing is that the enterprise is located on the territory of the state.

To calculate the domestic national product (GNP), only the products of those production facilities which are considered national.

What is GDP?

As we have already noted, the term has a very simple definition - it is the cost of everything that is produced in the state. The calculation of the indicator is multi-level and its implementation is carried out by special services. It is generally accepted that GDP is expressed in US dollars, however, today the following options are also used:

national currency of the country;
monetary unit of any state, in accordance with the exchange rate.

The dollar is used to compare the GDP of different countries to compile ratings and assess the current economic situation.

What types of GDP are there?

To get a more complete understanding of the indicator, it is worth getting acquainted with its types. So, let's look at this issue in more detail and note that GDP can be:

real;
nominal.

Real GDP is an indicator that is used to account for growth in production without using its financial side. As a rule, this parameter is expressed in prices of the year that was taken as the main one when making calculations. For example, to calculate the indicator for last year, Rosstat used price data for 2011 as a basis.

The advantage of the indicator is that it allows you to determine the growth of a country’s trade turnover. Real GDP does not depend on changes in exchange rates and other economic parameters. It is this indicator that draws conclusions about the current state of the economy in the country.

For example, real GDP will allow you to quickly understand if there is a crisis in the country and how severe it is economic situation has already taken shape. For countries whose economies are stable, real and nominal GDP are the same.

The nominal indicator is GDP calculated in current prices. The cost of certain goods is determined at the time of collection and is subsequently used for making calculations. When a country experiences an increased level of inflation, GDP may increase, however, such a reaction will be formal and the reason for it will be a real decrease in production capacity.

In fact, nominal GDP serves to reflect the rise or fall in the cost of goods and services within a country, without touching the dynamics of economic development as a whole. Nominal GDP serves as a unique tool for economists to draw certain conclusions and make forecasts.

An example is the situation of a change in an indicator. If, with a constant increase in prices, the level of demand begins to fall, then nominal GDP will decrease significantly.

What is “GDP per capita” and “GDP at PPP”?

Economists often use the term “GDP per capita.” This indicator is used to identify important indicators of a state or a specific region. It is very easy to calculate this indicator using a simple formula:

GDP per capita = total GDP / per number of citizens living in the country.

This parameter is also used to compare economic indicators in different countries. In fact, this indicator cannot be considered absolute and accurate, since the data used in the calculation changes periodically and is not always real.

PPP is another term that needs to be deciphered. Purchasing power parity is encrypted under this concept. This indicator is used to compare data in different countries and in different monetary units. In other words, GDP at PPP is the ability of a citizen of one state to purchase the goods of another with his available income.

When conducting international comparisons, the UN compares about 700 basic goods, 250 investment objects, 15 objects under construction.

Methods for calculating GDP

The classic formula for calculating GDP is quite simple:

GDP = Gross Value Added + Taxes on Products and Imports - Subsidies on Products and Imports, however, different formulas may apply when certain calculation techniques are used. There are several methods for calculating this indicator. Let's note the most famous and simple ones:

Production method or value added. To calculate GDP, the value added indicator and the market valuation of production in the state are taken as the basis. The method is production
Distribution methodology or by income. To calculate GDP using this method, the following types of income are used: all salaries and bonuses paid to the population, income from land rental, interest on the use of borrowed funds. Direct taxes and salaries of civil servants are not taken into account.
End use or cost method. To calculate the indicator, it is necessary to use the following types of expenses: consumer, government, investment, net exports.

There is a special calculation formula for this method:

C - personal consumer expenses;

I—gross investment;

G – government procurement of goods and services;

Xn is net export.

Each method has its own characteristics and subtleties. In our country, all three calculation methods are used, however, the greatest preference is given to the distribution method.

GDP in the Russian Federation

Every year, Russian President V. Putin convenes a press conference where he reports on the current indicators of the country’s GDP. Last year, such a meeting took place at the end of December, where the President said that in 2016 there was a decline in GDP, however, it was within the normal range and amounted to 0.5-0.6%. If we compare the figures for 2015, when GDP was 3.7%, we can note that the drop was insignificant. Moreover, in November last year, there was a slight increase in the indicator, which could be the beginning of an increase in the pace of the economy in the state.

Dmitry Medvedev also expressed his opinion on this issue. The Prime Minister confirmed that the country has gone through one of the most difficult periods in its history and today we can say that the state has adapted to the fall in oil and gas prices. According to Medvedev, the economic decline was stopped and the GDP indicators were:

nominal GDP – 1,267 billion US dollars;
PPP - 3,745 billion US dollars.

As for the level of GDP in 2017, it is worth noting that already in the first months of the new year, GDP growth was noted, and by the end of the year it amounted to 1.1%.

What is the significance of the GDP indicator for the state?

As we have already noted, GDP is an indicator that includes the total value of all products, goods and services that the state produced during the year. This parameter for each country has great importance, since they allow us to determine the trends and speed of economic development of the state. The following features are characteristic of GDP:

the indicator is measured in dollars to allow further comparison;
within the country, data are calculated in national currency;
the indicator is recalculated annually;
GDP is formed not only from government, but also from private income;
the indicator fully reflects the stage of economic development of the country.

In order for GDP to be calculated as accurately as possible, it is not enough to take the basic general figures and make the calculations. To get a more complete picture of the development of the state, to determine GDP, namely, to understand which sectors are the most profitable, it is worth checking such indicators.

For example, in Russia, the most efficient and profitable industries are those related to the sale of oil and gas; accordingly, income received from this source plays a special role in the formation of GDP.

Conclusion

GDP is a very simple concept that can be described in simple words and phrases, without using complex terms and concepts. Our article was written so that even people without economic education can obtain the desired information without delving into complex formulations and calculations.

The work provides simple definitions basic concepts and describes the main methods for calculating GDP, which allow you to get an idea of the most important economic indicator of any state.

GDP is the “wallet” of the state

The initial letters of the expression “Gross Domestic Product” (what did you think?)
Gross domestic product is one of the most important economic indicators economic activity countries. It indicates the market value of all goods and services produced in the country during the year for the purpose of consumption, export and accumulation, with the exception of the cost of intermediate goods and services, that is, raw materials, fuel, energy, feed and others.

This is done to avoid double billing. For example, the cost of a car includes the cost of the iron from which steel is made; steel from which rolled products are produced; rolled metal from which the car is made.

GDP - (decoding - Gross Domestic Product) is the most complete indicator of social welfare. It gives an idea of the overall material well-being of a nation, since the higher the level of production, the higher the welfare of the country.

Gross domestic product is determined by money, because only money serves as a measure of the cost of goods and services; only with the help of this universal equivalent can wheat and washing machines, books and tractors, Cell phones and the services of shoemakers and doctors.

There is nominal and real GDP. The first is expressed in current prices of a given year. The second is in prices of the previous or any other base year. Real GDP takes into account the extent to which GDP growth is driven by real output growth rather than price increases.

Gross domestic product is expressed in national currency, but for the convenience of international relations, GDP is calculated in US dollars. Comparability of indicators is ensured by a unified methodology for determining GDP, developed by the UN Statistical Service and adopted in most countries of the world.

The history of the emergence of calculations of Gross Domestic Product

The first attempt to measure the economic activity of the state was made by former Russian citizen and then American economist Simon Kuznets (Shimon Abramovich Kuznets). His first calculations appeared in 1934. In 1937, he presented to the US Congress calculations of indicators of US economic activity for 1929 - 1935. In 1971, for his scientific exploits, S. Kuznets was awarded Nobel Prize in Economics

Leaders in terms of GDP for 2012 (in millions of dollars)

USA - 72,440,449
China - 16,244,600
Japan - 8,223,103
Germany - 5,959,718
France - 2,612,878
UK - 2,471,784
Brazil - 2,252,616
Russia - 2,014,775
Italy - 2,014,670
India - 1,841,717

In 2013, GDP growth in Russia was 1.3%