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What is GDP?

Mary McMahon
Updated May 16, 2024
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The Gross Domestic Product or GDP is a measure of all of the services and goods produced in a country over a specific period, classically a year. This measure considers the market value of goods and services to arrive at a number which is used to judge the growth rate of the economy and the overall economic health of the nation concerned. As an economic measure, the GDP can be a very useful yardstick, but it has some serious flaws which have led some people to propose the use of alternate measures of economic and social well being.

When a GDP is calculated, it includes all private and government spending, goods and services produced, and exports. It is adjusted for imports and inflation to arrive at a number which is believed to accurately reflect the sum total of the nation's goods and services. The GDP can be expressed as a bulk number, but it is more commonly converted into a per capita figure, creating a number which reflects the average per citizen. High per capita GDPs are associated with overall improvements in standards of living.

One advantage of the GDP is that, because it is computed in a very clear and standardized way, it is easy to compare previous numbers to judge the health of an economy. Economists can also convert GDPs from different countries to compare their economies to each other. The key desire is to show that a nation's economy has grown since the previous year, with nations usually issuing quarterly estimates to give people an idea of how well their economies are doing.

One of the biggest problems with the GDP is that it does not account for black and gray markets. While this may not seem like a major issue, some nations have very heavily trafficked black markets which could actually represent a sizable portion of the GDP. The figure also does not account for the distribution of wealth, with per capita numbers hiding economic disparities. A nation like the United States, for example, has a very large GDP per capita, but a huge disparity between the wealthiest and poorest Americans.

GDP accounting also does not allow for the quality of the goods and services produced, or the purpose for which those goods and services were produced. A nation recovering from a severe hurricane, for example, might spend a lot of money to repair hurricane damage, thereby boosting its GDP, but the hurricane recovery would not necessarily be linked to economic growth. Environmentalists have also criticized the measure for failing to weigh environmental factors, as in the instances of goods which produce pollution. In fact, the figure can even reward environmental damage, because funds distributed for cleanup efforts are counted as part of the overall GDP.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments

By anon925306 — On Jan 11, 2014

Does the per capita income of a country reflect its gdp? Yes or no.

By anon172641 — On May 04, 2011

my question is that is india doing well in terms of economy?

By anon61856 — On Jan 22, 2010

yes it's right that there is not much impact of recession in the indian economy and that's also exactly right that 70 percent of its national income comes from services and the rest from industry, trade and commerce.

but i am concerned that 65 percent of businesses depend also on agriculture and farming. that's why the government takes income from farmers and the other 35 percent of the income comes from services or industries.

Farming is our traditional business. it continues to start our merchants. that's the reason till now there is no more effect of recession in our india and the government.

also get a lot of part of income by the agriculture by which industries carry on with the help of farming. On one hand it provides income for the government and on the other hand it provides raw materials for industries, i.e. goods for production, many types of crops, etc. by farming a lot of people are employed, also.

Industry also provides employment to people but they also provide more services to industries. that's why industries give the income for people. that's the income and services of industries. Jitendra

By anon44140 — On Sep 05, 2009

some people say there is not much impact of recession in the indian economy because 70 percent of its national income comes from services and rest from undustry, trade and commerce.

but my question is that a portion of that 70 percent of national income is also dependent on industry. Because people render their services to the industry. They earn salaries and give income tax.

what will you say that income of government? income from services or industry?

Mary McMahon

Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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