4/9/2015

Gross Domestic Product

Gross Domestic Product

Mercado, Chamille B.
Moreno, Krizzia Lynn O.
Pilar, Hazell Mea E.
4T3

Organization for Economic Co-operation and

Development (OECD): "an aggregate measure of
production equal to the sum of the gross values
added of all resident, institutional units engaged in
production (plus any taxes, and minus any
subsidies, on products not included in the value of
their outputs)"
a measure of national income or output and
national expenditure produced in a particular
country
monetary value of all the finished goods and
services produced within a country's borders in a
specific time period

Nominal GDP vs. Real GDP

Gross Domestic Product
includes all of private and public consumption,
government outlays, investments and exports
less imports that occur within a defined
territory
measure the economic performance of a
whole country or region, but can also measure
the relative contribution of an industry sector
pattern of GDP growth is held to indicate the
success or failure of economic policy
determine whether an economy is in
recession

Nominal Gross Domestic Product

the measurement that leaves price changes in the
estimate.
tells you the absolute output of any country.

Real Gross Domestic Product

the economic output of a country minus the effect of
inflation
it reports the GDP as if prices never went up or down
GDP allows you to compare countries

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Nominal GDP vs. Real GDP

As a result, nominal GDP is usually higher.
Nominal GDP includes both prices and growth, while real
GDP only includes growth.
Both real and nominal GDP are given as an annual rate.
The formula for real GDP is nominal GDP divided by the
deflator, or R = N/D.
The deflator is a measurement of inflation since a
designated base year.

Gross Domestic Product

Theoretically, GDP can be viewed in
three different ways:

1. Expenditure Approach
2. Production Approach
3. Income Approach

For example, if prices rose 2.5% since the base year, the deflator is
1.025. If the nominal GDP were 10 million, the real GDP would be
976,000 or 10,000,000/1.025 = 976,000.

Expenditure Approach
adds up the value of purchases made by final users
GDP = C + G + I + NX
where:
"C" is equal to all private consumption, or consumer
spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on
capital
"NX" is the nation's total net exports, calculated as total
exports minus total imports
(NX = Exports - Imports)

Production Approach
sums the value-added at each stage of production, where
value-added is defined as total sales less the value of
intermediate inputs into the production process
For example, flour would be an intermediate input and
bread the final product; or an architects services would be
an intermediate input and the building the final product
This approach mirrors the OECD definition:
Estimate the gross value of domestic output out of the many various
economic activities
Determine the intermediate consumption,
i.e., the cost of material, supplies and services used to produce final goods or
services.

Deduct intermediate consumption from gross value to obtain the

gross value added.

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Production Approach

Income Approach

Gross value added = gross value of output value

of intermediate consumption

sums the incomes generated by production

Value of output = value of the total sales of goods and

services plus value of changes in the inventories

The sum of the gross value added in the various

economic activities is known as "GDP at factor
cost".
GDP at factor cost plus indirect taxes less
subsidies on products = "GDP at producer price.

Gross National Income

the sum of a nations gross domestic product (GDP)
plus net income received from overseas
the sum of value added by all producers who are
residents in a nation, plus any product taxes (minus
subsidies) not included in output, plus income received
from abroad such as employee compensation and
property income.
the total domestic and foreign output claimed by
residents of a country, consisting of gross domestic
product (GDP) plus factor incomes earned by foreign
residents, minus income earned in the domestic
economy by nonresidents (Todaro & Smith, 2011: 44).

For example: the compensation employees

receive and the operating surplus of companies
(roughly sales less costs)

Gross National Income

GNI measures income received by a country both
domestically and from overseas. In this respect, GNI is
quite similar to Gross National Product (GNP), which
measures output from the citizens and companies of a
particular nation, regardless of whether they are located
within its boundaries or overseas.
GNP and GDP both reflect the national output and income
of an economy. However, the main difference is that GNP
takes into account net income receipts from abroad.
GNP = GDP + Net property income from abroad
This net income from abroad includes dividends, interest and profit.
GNP includes the value of all goods and services produced by
nationals whether in the country or not.