what is GDP ?
what is GDP ?

In the previous article we discussed about what is stock market. In todays article you will learn everything about GDP, Who started it, when and why it was stated.

Table of Contents

When did GDP Start ?

When all the countries of the world were struggling with the economic recession, it took almost 10 years for the country to get out of this economic recession. After the rescission, country started thinking about improving the economical condition of the country.

But at that time there was no way to measure the economic condition of the country, so at that time all the banking companies of the world including financial institutions and banks came forward and assured the country that it would keep an account of the economic development of the country and put it in front of the country.

what is GDP?

In this way, the task of measuring the economic development of the country was entrusted to the banks. Due to no permanent way of measuring the economic condition of the country, this method of banks was not able to correctly assess the economic situation of any country.

The word GDP was first introduced to the world by an American Economist Simon. Economist Simon used this term GDP during the years 1935 – 1944.

It was a period in the world when the world’s banking institutions were looking for a word to measure economic growth, most of which did not seem to be accurate for this, in the same order of finding the words American economist Simon defined the term GDP. After that the IMF ie International Monetary Fund started using this term.

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What is GDP ?

GDP is defined as Gross Domestic Product. GDP is a measure of the economic condition of any country. So that the country’s economic situation can be easily understood. Generally GDP is calculated in a year but in India GDP is calculated every quarter (3 months).

The GDP figures of any country are based on the growth rate of production in the major sectors of the economy. Initially, the three major components included only agriculture, industry and services under GDP. In the last few years, different services like education, health, banking and computers were also added to the IT service sector. In all these areas, the GDP rate is determined on the basis of average increase or decrease in production.

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As an example

Suppose in 2020 our country produced 100 sacks of grain in total and one sack grain costs Rs 1000, then in 2020 our country’s GDP will be 100 × 1000 = 100000.

Now you would think that if it is so that out of 100 sacks of these grains, 50 sacks should be raised by the government, 30 sacks should be grown by a private company and 20 sacks by a foreign company. So in this case, who do we want to add and who should we leave?

The government dont care about who is producing. Like we have already told you. Whatever product is made within the border of our country. Then, no matter who has produced that product, its total value comes under the GDP of our country.

This is an easy way to understand GDP but within any country only ten bags of food grains are not produced.

There are unlimited products that are made in the country and as we have already mentioned, apart from the things we have to add to the service sectors, how is it possible to do such a complex calculation, while finding solutions to this problem, economists have also divided the GDP into two parts.

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What are the types of GDP ?

The value of goods and services is calculated to measure the GDP of any country. The price of these goods and services changes according to the changing times, due to which the figure of GDP also changes. For this, many indirect and average calculations are done on the basis of tax.

The GDP of any country is presented in two ways. Because the price of production keeps on decreasing with inflation. This scale is the content price under which the rate of GDP and the value of production is fixed on the price of production in one base year. The second scale is the current price which includes the inflation rate of the production year.

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Constant Price Real

The Statistics Department of India fixes a base year for the evaluation of production and services. During this year, the basis of prices is determined by the price of production and the comparative growth rate and this is the cost price GDP. This is done so that the rate of GDP can be measured properly by keeping it separate from inflation.

Current Price

If the rate of inflation is added to the production value of GDP, we get the current price of economic production. That is, you have to add the cost price GDP to the immediate inflation rate.

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Easy way to extract GDP

A formula has been devised by economists to measure GDP. Any person of the country can easily come out of GDP and find out the economic situation of the country.

GDP = Consumption (consumption) + Investment (total investment) + Government Spending (government spending) + {Export (export) – Import (import)}

Consumption

The term Consumption means the personal household expenditure of the people of the country. This includes food, rent, medical expenses and such household expenditure.

Investment

The term investment means the total expenditure incurred by all institutions on goods and services within the domestic boundaries of the country.

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Government Spending

The term Government Spending means all the expenses incurred by the government are included. Such as investment made by the government, buying salaries, arms, etc. of all types of government employees.

Export

GDP even consists in Export. Exporting Goods and Services is a process through which a product produced from country is transported to another country.

Import

Importing Goods By importing we keep those goods and services which are produced outside the border line of our country. We reduce imports while extracting GDP.

The Reserve Bank of India is once again going to make some changes to correctly estimate GDP growth. This time 12 sectors are being added to it.

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  • Index of Industrial Production (IIP) – Consumer Goods
  • IIP-Core Sector
  • Automobile Sales
  • Non-oil-non-gold imports
  • Export
  • Rail fare
  • air cargo
  • Arrival of foreign tourist
  • Deposited with the government
  • Tax nominal effective
  • Exchange Rate (NEER)
  • Sensex
  • Bank credit

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Conclusion

In this article, we have given you complete information about GDP. Here we have discussed about

  • when was GDP Started?
  • who started GDP?
  • what is GDP?
  • how to get GDP of any country?
  • how much of GDP is important for any country?

If you liked this article, then tell us by commenting, but if you have any question about GDP, you can also ask us by commenting.

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