What is Gross Domestic Product (GDP)

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Gross Domestic Product (GDP) is the total monetary value of all final goods and services produced within a country’s borders during a specific period, usually a quarter or a year. It is one of the most widely used indicators to measure the size, growth, and performance of an economy.

 

 

Types of GDP

1.       Nominal GDP: GDP measured at current market prices, without adjusting for inflation. It can rise simply due to higher prices, even if actual production has not increased.

2.       Real GDP: GDP adjusted for inflation, measured at constant prices of a base year. It shows the actual increase in production by removing the effect of price changes.

 

 

Common Misconceptions about GDP

·         GDP means national wealth: GDP does not measures the total wealth or assets of a country. GDP measures the flow of goods and services in a period, not the stock of accumulated wealth (land, savings, buildings, etc.).

·         Higher GDP means higher well-being: A country with a higher GDP is not automatically better off. GDP does not account for inequality, environment, health, or quality of life.

·         GDP counts all economic activity: All value-creating activities are not part of GDP.  It excludes unpaid household work, caregiving, and most of the informal/underground economy.

·         Nominal GDP growth always means real growth: If GDP rises, production does not definitely increased every time. Nominal GDP can rise purely due to inflation. Real GDP is needed to assess true growth.

·         GDP is the government’s revenue: GDP is not the amount of money earned by the government. GDP is the country’s total production value, while government revenue is only a fraction collected through taxes.


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