It is quite difficult for an ordinary person without an economic education to understand what GDP is. In economics, this indicator plays a very important role. Based on it, one can assess the level of economic development of the state and its competitiveness in the international market.
Gross domestic product (GDP) is the aggregate of all goods (goods and services) produced by residents in a given country during the year, expressed in prices of the final product.
Simply put, gross domestic product is the total amount of all goods and services produced by all enterprises and organizations of a country for a certain reporting period (most often a calendar year is estimated).
What is GDP in the economy?
This indicator is very important in assessing the effectiveness of the functioning of the country's economy. Gross domestic product characterizes the growth rate and level of its development. Often, the GDP indicator is used to assess the standard of living of the state’s population. The higher this indicator, the higher the standard of living is considered (the relationship between the indicators really exists, but other, more specific economic indicators should be used).
Nominal and real gross domestic product
The GDP indicator can be of two types:
- Nominal (calculated in the prices of the current period).
- Real (calculated at prices of a comparable previous period). Most often, the prices of the previous year are taken for comparison.
The calculation of real GDP allows you to level the effect of price increases on this indicator and determine the net growth of the state economy.
Most often, the GDP indicator is calculated in national currency, however, if there is a need to compare the corresponding values of different countries, it can be converted into another currency at the corresponding exchange rates. The global GDP growth is as follows (2013).
Income (distribution) method of calculating GDP
What is GDP in the economy? This is, firstly, an indicator based on an assessment of the profitability of owners of production factors. Calculation occurs by summing them. At the same time, the following components are included in the amount of GDP:
- W - the full amount of wages paid to all employees of the country (both residents and non-residents);
- Q - the amount of deductions for social insurance;
- R - profit (gross);
- P - mixed income (gross);
- T - taxes (for import and production).
Thus, the calculation formula has the form: GDP = W + Q + R + P + T
Consumption (production) method
The population of the country in the course of its labor activity produces different types and forms of the final product (we mean specific goods or services that have a certain cost). It is the totality of the population’s expenses for the acquisition of the end products of labor activity that will make up the gross domestic product. When calculating GDP by the production method, the following indicators are summarized:
- C - expenditures of the population of the country on consumer needs;
- Ig - private investment in the country's economy (gross);
- G - public procurement (state acquisition of goods and services)
- NX - net exports (the difference between exports and imports of the state).
GDP is calculated by the formula: GDP = C + Ig + G + NX
Value Added Calculation
The Institute of Economics allows the calculation of the amount of GDP through value added. This technique allows you to get the most accurate indicator of GDP, because it discards intermediate products, which by mistake can be counted as final in the previously discussed methods. That is, the use of value added calculation eliminates the possibility of double accounting. Summing up the indicators of added value of all goods and services in the country, it is possible to reliably calculate the GDP. This is because value added is the market value of the product minus the cost of materials and raw materials purchased from suppliers.
GDP per capita
One of the most significant and indicative indicators of the level of development of the state economy. It is determined by dividing the total GDP by the number of inhabitants of the country and shows how many products were manufactured for a certain period on average per inhabitant of the state. Also, this indicator is called "per capita income."
Also a frequently used indicator of economic development is the gross national product (GNP), which summarizes the final product produced both in the country and abroad. The main condition is that the manufacturer of the products are residents of the state.
What is GDP in the economy and its role in the analysis of ongoing changes, we have already studied. So what are the real GDP indicators of the countries of the world today?
Rating of countries by nominal GDP
This rating is based on the nominal GDP converted to dollars at the market (or established by the authorities) exchange rate. The world economy is structured in such a way that this indicator is somewhat underestimated in developing countries, and in developed countries is overstated. This is due to the fact that the difference in the cost of homogeneous products in different countries is not taken into account.
So, the top ten, according to the IMF for 2013, is as follows:
Rating of countries by nominal GDP per capita
The level of GDP per capita is an indicative, but not the most accurate, indicator of the economy, since it does not take into account the specifics of sectoral development of the economy, the cost of production, its quality, as well as other equally important elements of the economic system.
The list of 10 countries with the highest level of GDP per capita, according to the IMF for 2013, looks like this:
The problem of slowing economic growth in Russia
The global crisis processes, as well as a number of subjective economic factors caused the fact that in 2013-2014 the Russian economy also somewhat weakened. GDP, respectively, grew at an extremely low rate. So, according to Alexei Ulyukaev, who holds the post of Minister of Economic Development of the Russian Federation, 2013 was the worst for the Russian economy after the crisis of 2008. Over its entire period, Russia's gross domestic product did not increase at the same rate as expected. Thus, the expected rate of GDP growth decreased by the agency from 3.6% at the beginning of the period to 2.4% in June and, finally, 1.4% in December.
The situation in industry also remained deplorable. If there was still a slight increase in the production, the manufacturing even showed a slight decline. Inflation also reached 0.5% higher than expected.
Causes of the crisis in the Russian economy
Thus, you can see signs of stagnation of the Russian economy. There are objective reasons for this, which can be divided into 2 groups: internal and external.
Intrinsic factors
- The economy has a commodity model. With this model, the main share of the economy’s income is generated due to the export of raw materials, which is eventually exhausted. The volume of domestic manufacturing and its competitiveness are also declining.
- Problems with investment attractiveness. The most important condition for the development of certain regions of the country is the availability of investment in the real sector of the economy. Today, many foreign investors are puzzled by the lack of protection of possible financial injections. Therefore, it is necessary to take measures to create a modern regulatory field, as well as to promote international integration processes.
- High costs of business projects. This refers to excessive spending on fixed assets, wages, rental of premises and territories, as well as associated production costs. It is necessary to carry out a set of measures to reduce relevant costs.
