What is the full form of GDP?
The full form of GDP is Gross Domestic Product. GDP is the overall monetary or consumer value of all finished goods and services produced within the boundaries of a nation over a given time. It serves as a specific measure of overall domestic output, as a detailed scorecard of the economic health of a given country. When economists speak about the size of the economy, they refer to GDP. The GDP growth rate is a significant measure of a country’s economic growth. As the GDP increases, the people’s living standards in that nation are also continuously rising. A country with a high GDP is considered the right country for living purposes. In India, three significant sectors contribute to GDP; agriculture, manufacturing, and service.
History of GDP
William Petty gave the basic concept of GDP to defend the landlords from unfair taxation between the English and the Dutch between 1654 and 1676. Later, Charles Davenant further developed this method. Their modern concept was first established in 1934 by Simon Kuznets. It became the principal tool for measuring a country’s economy after the Bretton Woods conference in 1944.
Different methods of measuring GDP
There are several methods for measuring the GDP of the country, and it’s essential to know all the various forms and how they’re used. Following are the three approaches to calculate GDP.
Income method estimates the overall revenue received by production factors, that is, labour and capital within a country’s national boundaries. According to the input method
GDP = A + T – S
A = GDP at Factor expense
T = Taxes
S = Subsidies
Output method measures the market value of all goods and services produced within the borders of the country. To prevent a skewed calculation of GDP due to price level adjustments, GDP is measured at constant prices or actual GDP. According to the output system
GDP = B – T + S
B – GDP at a constant prize or real GDP
T – Taxes
S – Subsidies
Includes testing expenditure on goods and services incurred by all individuals within a country’s domestic boundaries. According to the expenditure system
GDP = C + I + G + NX
C – Personal consumption expenditure
I – Business investment
G – Government spending
X – Exports
M – Imports
NX = (X – M) which is a net export.