Gross domestic product
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In economics, the gross domestic product (GDP) is a measure of the amount of the economic production of a particular territory in financial capital terms during a specific time period. It is one of the measures of national income and output.
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Definition
GDP is defined as the total value of all goods and services produced within that territory during a specified period (most commonly, per year). GDP differs from gross national product in excluding inter-country income transfers, in effect attributing to a territory the product generated within it rather than the incomes received in it.
Whereas nominal GDP refers to the total amount of money spent on GDP, real GDP refers to an effort to correct this number for the effects of inflation in order to estimate the sum of the actual quantity of goods and services making up GDP. The former is sometimes called "money GDP," while the latter is termed "constant-price" or "inflation-corrected" GDP -- or "GDP in base-year prices" (where the base year is chosen arbitrarily). See real vs. nominal in economics.
A common equation for GDP is:
- GDP = consumption + investment + Gov. Purchases +exports - imports
Aggregate expenditures are calculated in a similar way, although the aggregate expenditures formula does not account for unplanned investment (left over inventory at the end of the reporting cycle) and is more commonly used by economic theorists.
GDPs of different countries may be compared by converting their value in national currency according to either
- current currency exchange rate: GDP calculated by exchange rates prevailing on international currency markets
- purchasing power parity exchange rate: GDP calculated by purchasing power parity (PPP) of each currency relative to a selected standard (usually the United States dollar).
The relative ranking of countries may differ dramatically between the two approaches.
The purchasing power parity method accounts for the relative effective domestic purchasing power of the average producer or consumer within an economy. This can be a better indicator of the living standards of less-developed countries because it compensates for the weakness of local currencies in world markets.
The current exchange rate method converts the value of goods and services using global currency exchange rates. This can offer better indications of a country's international purchasing power and relative economic power.
For more information see measures of national income.
Problems
Although GDP is widely used by economists, its value as an indicator has also been the subject of controversy. Criticisms of GDP include:
- Very often different calculations of the GDP are confused among each other. One should especially regard whether it is calculated by purchasing power parity method or current exchange rate method.
- GDP, as a measure of economic size, fails to measure well-being and standard of living accurately.
- GDP doesn't take into account the black economy, non-monetary economy such as bartering, volunteer work, or informal creation of wealth, such as unpaid childcare provided by non-working parents, or production of goods taking place at home. Hence, in countries with major business transactions occurring informally, portions of local economy are not easily registered, resulting in inaccurate or abnormally low GDP figures.
- GDP doesn't measure the sustainability of growth, as a country may achieve a temporary high GDP by over-exploiting natural resources.
- GDP counts work that produces no net gain, and does not account for negative externalities. For example, if a factory pollutes a river, that boosts GDP, and when the taxpayers pay to have it cleaned up, that boosts GDP again. See parable of the broken window.
- GDP also does not tell us the actual distribution of the wealth of a country. Certain groups of people within a country might not be benefiting from its economic wealth. A high GDP could be the result of a case of a few very wealthy people contributing to the economy, while most of its citizens live at or below the subsistence level.
In spite of the problems with GDP as an economic measurement, concrete proposals for a replacement metric have been difficult to generate. A proposed substitute known as the Genuine Progress Indicator (GPI) has been promoted by the Green Party of Canada. How exactly to determine GPI is uncertain, however; one possible formula was devised by Redefining Progress, a San Francisco policy research group.
United States GDP
To give an example of the components and their size. ([1])
| Period Ending | 2003 |
|---|---|
| Gross domestic product | 11,004.0 |
| Personal consumption expenditures | 7,760.9 |
| Durable goods | 950.7 |
| Nondurable goods | 2,200.1 |
| Services | 4,610.1 |
| Gross private domestic investment | 1,665.8 |
| Fixed investment | 1,667.0 |
| Nonresidential | 1,094.7 |
| Structures | 261.6 |
| Equipment and software | 833.1 |
| Residential | 572.3 |
| Change in private inventories | -1.2 |
| Net exports of goods and services | -498.1 |
| Exports | 1,046.2 |
| Goods | 726.4 |
| Services | 319.8 |
| Imports | 1,544.3 |
| Goods | 1,282.0 |
| Services | 262.3 |
| Government consumption expenditures and gross investment | 2,075.5 |
| Federal | 752.2 |
| National defense | 496.4 |
| Nondefense | 255.7 |
| State and local | 1,323.3 |
List of total GDP by country (Purchasing Power Parity Exchange Rate)
| Rank | Entity | PPP total | PPP/capita | Population |
|---|---|---|---|---|
| (U.S dollars) | (U.S dollars) | (2003 est.) | ||
| 1. | United States | 10.40 trillion (1012) | 37,600 | 290,343,000 |
| 2. | Eurozone1 | 7.87 trillion | 25,300 | 311,004,756 |
| 3. | Mainland China | 5.70 trillion | 4,400 | 1,287,000,000 |
| 4. | Japan | 3.55 trillion | 28,000 | 127,215,000 |
| 5. | India | 2.66 trillion | 2,540 | 1,049,701,000 |
| 6. | United Kingdom | 1.52 trillion | 25,300 | 60,095,000 |
| 7. | Russia | 1.35 trillion | 9,300 | 144,526,000 |
| 8. | Brazil | 1.34 trillion | 7,600 | 182,032,000 |
| 9. | South Korea | 931 billion (109) | 19,400 | 48,249,000 |
| 10. | Canada | 923 billion | 29,400 | 32,207,000 |
| 11. | Mexico | 900 billion | 9,000 | 104,908,000 |
| 12. | Indonesia | 663 billion | 3,100 | 234,894,000 |
| 13. | Australia | 528 billion | 27,000 | 19,732,000 |
| 14. | Turkey | 468 billion | 7,000 | 68,110,000 |
| 15. | Iran | 456 billion | 7,000 | 68,279,000 |
| 16. | South Africa | 432 billion | 10,000 | 42,769,000 |
| 17. | Thailand | 429 billion | 6,900 | 70,000,000 |
| 18. | Taiwan | 406 billion | 18,000 | 22,116,000 |
| 19. | Argentina | 391 billion | 10,200 | 38,000,000 |
| 20. | Poland | 368 billion | 9,500 | 38,000,000 |
1 Although the Eurozone is not formally a nation, it is tied together with a single currency and is considered by some to be a single entity; its trade behaves as such. However, this figure is not necessarily accurate, as it is merely a sum of the GDPs of the Eurozone nations, not a result based on econometric models taking into account differences in transanational exchange rates.
The methodology for deriving accurate PPP comparisons remains under constant review, and questions have been raised as to whether the relative size of Mainland China's GDP may be overstated to some extent.
The reporting areas reported Gross Domestic Product number and the PPP US dollar exchange rate used to convert it (2003): [2].
For further data, see List of countries by GDP (PPP)
List of total GDP by country (Currency Exchange Rate)
Total GDP 2003 (millions of Ranking Economy US dollars). The ranking is different to the list above, which uses PPP method
(If changing numbers, please use the same source for all countries)
- USD 10,958,833 -- European Union
- USD 8,174,681 -- Eurozone
- USD 10,881,609 -- United States
- USD 4,326,444 -- Japan
- USD 2,400,655 -- Germany
- USD 1,794,858 -- United Kingdom
- USD 1,747,973 -- France
- USD 1,465,895 -- Italy
- USD 1,409,852 -- Mainland China
- USD 836,100 -- Spain
- USD 834,390 -- Canada
- USD 626,080 -- Mexico
- USD 605,331 -- South Korea
- USD 598,966 -- India
- USD 518,382 -- Australia
- USD 511,556 -- Netherlands
- USD 492,338 -- Brazil
- USD 433,491 -- Russian Federation
- USD 309,465 -- Switzerland
- USD 302,217 -- Belgium
- USD 300,795 -- Sweden
- USD 251,456 -- Austria
- USD 237,972 -- Turkey
- USD 221,579 -- Norway
- USD 212,404 -- Denmark
- USD 209,563 -- Poland
- USD 208,311 -- Indonesia
For further data see
- List of countries by GDP
- List of African countries by GDP
- List of Asian countries by GDP
- List of European countries by GDP
See also
External links
- What's wrong with the GDP?
- Complete listing of countries by GDP: Purchasing Power Parity Method and Current Exchange Rate Method
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