Download Final Presentation GDP economics sem II

GDP
Gross Domestic Product is defined as the
total monetary value of all completely
finished goods and services within the
geographical boundaries of a country within
a stipulated time. Generally it is calculated
on a yearly basis.
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Expenditure Approach.
Income Approach.
Production Approach.
National Expenditure =National Output =
National Income
• 1. Production Approach: Total GDP is the sum of
gross value added by institutional units that are
resident in the economy (in different economic
activities) plus taxes on products and import (VAT,
excise tax and customs duties) less subsidies on
products.
• Calculation scheme is as follows: Total output
(goods and services) by types of activities in
market prices - intermediary consumption for
generating goods and services = GDP at market
prices + taxes on products and import - subsidies
on products = Total GDP at market prices.
• 2. Expenditure Approach: Calculation of GDP by
the expenditure approach is based on
expenditures incurred in a given period by
institutional units that are resident in the
economy.
• Calculation scheme is as follows: Consumption
expenditure of households + Services rendered by
non-profit institutions serving households +
Collective (public administration, defense, social
security and safety) and personal services
(education and healthcare) rendered by General
Government + Gross capital formation + Changes
in inventories = Total expenditure at market prices
+ Exports of goods and services - Imports of goods
and services = Total GDP at market prices.
Expenditures → GDP = C + I + G + Xn
Consumption
(C)
• Consumer
durables
• Consumer
nondurables
• Services
Investment (I)
• Business
investment
• Residential
investment
• Inventory
investment
Government
purchases (G)
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National
State
Local
NOT transfer
payments
Net exports
(Xn)
• Exports
• MINUS
Imports
• 3. Income Approach: Calculation of GDP by the
income approach is based on sum of income of
those institutional units who are directly involved
in production of goods and services in a given
period.
• Calculation scheme is as follows: Employment
income in the form of wages and Social benefits
(including Income tax) + Mixed income received
from self-employment + Total profit received by
companies from economic activities + Taxes on
production and import - Subsidies on production
and import = Total GDP at market prices.
• GDP estimates calculated by different approaches
might differ as data sources are different. The
differences are known as “Statistical Discrepancy”.
Income → GDP ≈ W + R + I + P
Labor
Land
Capital
Entrepreneur
Wages
Rent
Interest
Profit
Circular Flow
Resources
Land, Labor, Capital,
Entrepreneurship
Resource Market
Resource Payments
Rent, Wages, Interest, Profit
Households
Businesses
Household Expenditures
Business Revenues
Product Market
Goods and
Services
Three variations of GDP
Per Capita GDP
Real GDP vs. nominal GDP
GDP vs. GNP
Per capita GDP = GDP ÷ population
• Average level of income in a nation
• Not income distribution
• Nominal GDP – current production at current
prices
• Real GDP – current production at base year
prices
• To convert, use the GDP deflator
– GDP Deflator = (Nominal GDP / Real GDP) * 100
• GNP – total market value of all final goods and
services produced in a year from factors of
production (resources) owned by country’s
residents
– GNP is produced with the resources owned by the
country (anywhere in the world).
– GDP is produced inside the country’s borders.
Limits of GDP Measure
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Leisure time
Nonmarket economic activities
Environmental quality and resource depletion
Quality of life
Poverty and economic inequality
International GDP comparisons based on
exchange rates, which can introduce bias
Famously Quoted:
“[GDP] does not allow for the health of our
children, the quality of their education, or the
joy of their play. It does not include the
beauty of our poetry or the strength of our
marriages, the intelligence of our public
debate or the integrity of our public officials.”
Robert Kennedy
Economic Growth
What is it?
• Steady (long-term) increase in the quantity and quality of
goods and services an economy can produce
Why do we care?
• It affects living standards
How do we measure it?
• Percentage change in real GDP
Determinants
Availability of
resources
Technology
Growth
Productivity
Trade
Rule of 72
72 ÷ annual % growth ≈ Years to double value
• Shows the number of years required for a
variable to double at a given annual rate of
growth
Rule of 72 – Examples
• An economy that grows at 2% per year will
double its GDP in about 36 years
– (72 ÷ 2 = 36)
• An economy that grows at 7% per year will
double its GDP in just over 10 years
– (72 ÷ 7 = 10.3)
• An investment that earns a 4% annual return
will double in value in about 18 years
– (72 ÷ 4 = 18)
2010 Growth Rates and doubling time
(World Bank)
• India – 72 /8.8% = 8.1 Years
• China – 72/10.4% = 7 Years
Components of GDP
• Agriculture Sector
• Industry Sector
• Service Sector
Agriculture Sector
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Comprises of:
Agriculture
Fishing
Forestry
Poultry farming
Horticulture, etc…
Industry Sector
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Comprises of:
Mining and Quarrying
Manufacturing
Electricity, Gas and Water-supply
Service Sector
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Comprises of:
Construction
Trade, hotels, transport and communication
Financing, insurance, real-estate and business
services.
• Community, social personal services.
Factors affecting GDP
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Government policies
People spending (more or less)
Level of interest
Climatic conditions
Political stability
World environment
Present GDP of India is around Rs. 105
Lakh Crores. ( US $ 1.8 Trillion)
Present GDP US$ 9.24
Trillion (2013). [ Around
Rs.650 Lakh Crores]
CHINA v. USA GDP
in the last 20 years
(Billions of US$)
Recent Law Changes in China
• Labor Law-Dispatch Labor System
• Trademark Law
• Company Law
• India and China are among the most important
destinations for economic growth and the supremely
important markets of the world economy. They are
serious stakeholders in the present and future
economic stability of the world. With three seventh
(3/7th) of the entire world population residing in these
two nations (roughly around three billion people) this
region is the intense hotbed of economic activities and
growth.
• There is a need for strategic co-operation between the
two Asian behemoths so that a meaningful economic
development can be attained.
Thank You!