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What Is GDP (Gross Domestic Product)?

Before explaining the concept I would like to share a fact that, “According to the survey conducted Standard and Poor,76% of Indian adults lack basic financial literacy and they don’t understand the basic key financial concepts.”

That’s the reason I choose to write on this topic.

Coming back to the concept, What is GDP?

In layman’s term GDP is the monetary value of all finished goods and services produced in a country over a period of time.

According to the World Bank,” Gross Domestic Product is defined, “As the measure of the total output of goods and services for final use occurring within the domestic territory of a given country regardless of the allocation to domestic and foreign claims.”

GDP is commonly used as an indicator of the economic health of a country.

The most common approach to measuring and quantifying GDP is the expenditure method:

GDP = Consumption ( C ) + Gross Investment ( I ) + Government spending ( G ) + ( Exports (X) – Imports (M) ) Or

GDP = C + I + G + (X-M)

Little History:

The concept of GDP was first put forward by the American Economist and statistician Simon Kuznets in 1934 for United States Congress report. He introduced the idea of calculating all economic production by individuals, companies and governments in a single measure.

Types of GDP:

Nominal: Price levels for the year in which GDP is measured, states GDP in terms of the current value of goods and services.

Real: GDP adjusted for changes in prices, estimate of GDP if prices were to remain constant.

Overall Effects of GDP on Common Man (Economy):

The increase in GDP illustrates the overall growth made by the citizens of the country.High GDP creates more job opportunities resulting in the high standard of living of people.Whereas low GDP rate indicates high unemployment rate resulting in recession and at the same time inflation rate rises.Thus going by the simple equation,

High Growth = High Capital formation =High Investment = High Income

(OR)

High/Low Income —–> High/Low Demand ——> High/Low Production ——-> High/Low Income (Self explanatory).

Watch this video to know more facts about GDP.

Take the Financial Literacy Test here.

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