Gross Domestic Product (GDP):
GDP is the market
value of all final goods and services produced in a country within a particular
period of time. One can elaborately discuss the definition:
Market Value
GDP
helps us to measure aggregate level of output in a single value. For this
reason all products are firstly converted in a single currency unit (e.g.,
Bangladeshi Taka) multiplying
their prices with quantities and then sum up all values together. If the price
of an egg is ৳8 and the price
of an orange is ৳12, the market
value of 100 eggs and 100 oranges is ৳2000.
Of All
Here
only the goods and services are considered which are produced in an economy,
exchange in the market followed by the prevailed rules and regulation and
finally the output has some exchange value. For example, mother’s rearing and
caring for her child is not an item of GDP.
Final Goods and
Services
GDP
incorporates only the market value of final goods and services which are
bought by their final users i.e., those are not used as ingredients of
production. In contrast, the goods which are used for further production are
known as intermediate goods. For Example, button is an intermediate good
while shirt is a final good.
If
we add the intermediate goods and services in the basket of final goods and
services, the size of GDP will be abnormally large. In that case, GDP will
suffer from double counting problem. The value of a set of buttons is
already included in the price of a shirt. Now if one separately includes the
value of button in GDP, then double counting problem arises.
However,
some goods can be intermediate goods in some cases and final goods in other
cases. Suppose, Rony drinks milk every day. Polar ice-cream company purchase
milk to produce ice-cream. Here, in the first case milk would be treated as
final good while in the later case milk would be treated as intermediate good.
Produced
Sale
of reconditioned car would not be included in GDP since its value has already
been added up in GDP earlier. Therefore, GDP includes only currently produced
goods and services.
In a Country
Only
goods and services that are produced within the geographic confines of a
country are included in GDP. The goods or services are produced by either
domestic or foreign producer. Suppose the product of a South Korean company
situated in the Dhaka Export Processing Zone (DEPZ) would be considered as a
part of GDP of Bangladesh.
Within a
Particular Period of Time
GDP
measures the market value of production in a particular period of time. Usually
that period is a year of a quarter.
Nominal Versus Real GDP:
Like
other currencies the value of Bangladeshi Taka (৳) fluctuates over time. To make a comparison of GDP
among different years, economists adjust GDP with the change of general price
level. The unadjusted GDP is known as nominal GDP and the
inflation-adjusted GDP is called real GDP. To measure nominal GDP we
use current prices. By considering current production using constant prices, one can get real GDP.
One can simply calculate the nominal GDP and then divide it by the price level
i.e.,
