Gross Domestic Product is the full form of GDP. It is the total monetary or consumer value of all the finished goods and the services produced within a country's borders at a given time. It serves as a concrete measure of total domestic output, a detailed scorecard of a country's economic health. When the economists talk about the size of the economy, they mean GDP. The GDP growth rate is an important measure of a country's economic growth. As the GDP increases, the standard of living of the people in this country also increases continuously. A country with a high GDP is considered a suitable country for living purposes. In India, three major sectors contribute to the GDP; agriculture, manufacturing and services.
History of GDP
William Petty gave the basic concept of GDP to defend landowners against unfair taxation between the English and the Dutch between 1654 and 1676. Later, Charles Davenant developed this method further. Their modern concept was established in 1934 by Simon Kuznets. After the Bretton Woods
Conference in 1944, it became the main tool for measuring the country's economy.
Different methods of measuring GDP
There are several methods for measuring a country's GDP and it is essential to know all the different forms and how they are used. The following are three approaches to calculating GDP.
Income system
The income method estimates the total income received by the factors of production, i.e. labor and capital, within a country's national boundaries. By input method
GDP = A + T – S
Where
A = GDP at factor costs
T = Taxes
S = subsidy
Output system
The output method measures the market value of all the goods and services produced within a country's borders. To avoid a distorted calculation of GDP due to price level adjustments, GDP is measured at constant prices or real GDP. According to the output system
GDP = B – T + S
Where
B – GDP at constant price or real GDP
T – Taxes
S – Subsidy
Expenditure system
It includes expenditure on testing goods and services incurred by all individuals within a country's national borders. According to the expenditure system
GDP = C + I + G + NX
Where
C – Expenditure on personal consumption
I – Business investment
G - Government spending
X – Export
M – Import
NX = (X – M), which is net exports.