GDP full form is a Gross domestic product. Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced in a period.
Calculated: What factors influence GDP growth
In economics, gross domestic product (GDP) is the market value of all final goods and services from a nation in a given year.
– Government spending and taxes: The government can increase the GDP by investing in public projects like building roads or increasing its military budget by buying arms etc . This will contribute to an increase in the incomes of firms producing these things and thus indirectly contributes to an increase in GDP.
– Foreign trade: If a country’s exports are more than its imports then the net international trade balance is positive and vice versa. This impacts the GDP of a country in a positive manner if there is a positive trade balance or in a negative manner if there is a negative trade balance.
– Inflation rate: In case the inflation rate increases, people will have to spend more money on buying daily goods and services which will contribute positively to an increase in GDP.
How has GDP changed over time:
GDP per capita (per person) is often used as an indicator of living standards. GDP per capita may be calculated using purchasing power parity (PPP) rather than market exchange rates. PPP largely removes the exchange rate problem.
the benefits of a high GDP:
Economic growth is often one of the key indicators in a country’s development with advanced technology and infrastructure significantly increasing productivity with higher standards of living for people in a country.
The drawbacks of a high GDP:
When unemployment rates rise, this is accompanied by lower income levels which can adversely affect consumption from individual pockets.
It is estimated that every 1% drop in employment causes a 4% drop in consumption. In case there is rapid GDP growth then unless there is simultaneous rapid job creation, it will cause unemployment leading to decreased consumer spending.
How can a country increase its GDP:
GDP can be increased either by increasing the number of workers or increasing their productivity.
some strategies for reducing poverty and increasing economic growth:
– Increase in free trade between countries with reduced tariffs could increase GDP to developing countries since they would have easier access for exporting goods abroad.
– Reduction in military spending, will increase funds available to invest in infrastructure, technology, etc which would lead to an increase in production and thus increase GDP.
– Since developed countries like the USA gives aid to developing countries like Africa so there is a chance that the African govt. spends on projects like building roads, investing in education, etc.
this may potentially contribute to an increase in GDP.
– To improve economic conditions, a state can go for reducing unemployment which will increase the real income of people and thus potentially contribute to increases in GDP.
Can developing countries achieve the same levels of GDP as developed countries:
According to trend growth population projections, it is estimated that by 2045 there would be 9 billion workers globally out of which about 39% will be from developing countries.
This means developing nations would have more hands to use as compared to developed nations as their economies continue to grow.
Thus the chances are high that they might achieve the same level of GDP as developed nations.
Is there a limit to how high a country’s GDP can be:
GDP is a representation of the market value of all the final goods and services produced within a country in a year.
Thus there is no limit to how high can GDP be since it reflects current market prices and thus will change as per the inflation rates prevailing in the economy.
The income per capita, employment rate, the ratio of labor productivity(output)to employment, etc gives an insight into whether GDP growth is leading to the creation of quality jobs for people.
Why do countries try to increase their exports:
When a country’s exports grow more than its imports then the net international trade balance contributes positively towards increasing GD. It also increases GDP per capita by increasing the real income which a country’s people enjoy.
compare living standards in different countries:
Gross domestic product is typically associated with population level. For example, if you divide a country’s GDP by its population, it would reveal the average income of an individual who contributes to generating that GDP. By this method, we can compare living standards in different countries.
For example, GDP per capita in the USA is estimated to be USD57176 while it is only USD37625 in India. This means that on average a person’s income would be higher if s/he lives in the USA as compared to India.
Why do people prefer living in a developed country:
If we divide both GDPs by world population then the USA comes out with a value of 85 and India with a value of 28 which again shows that income levels are higher in the USA.
this makes people want to live in the USA irrespective of other factors like availability of health care opportunities, infrastructure development, etc. since the standards of living are comparatively high there.
GDP reflects market prices and is thus subject to change. It is a representation of the average income of an individual who contributes to generating that GDP. It can be used to compare living standards in different countries. People prefer living in developed countries because the average income levels are higher there.