Gross Domestic Product Explained
The season of interviews for MBA admissions is just round the corner and this typically is the time when most of the engineers start taking keen interest into words like economy, GDP, growth rate etc. Till this time our idea of per capita income is limited to the average salary offered during the latest placement season. Once started everyone knows that next year India’s rate is going to 8.5% while China has been consistently clocking 10+ % etc.
Some may even end up answering the question “What is India’s GDP ?” with a numerical figure in percentage (Say 8.5%). Now, it is for such people who, sans this article think that GDP is a percentage figure, that I am writing this article. Now GDP stands for Gross Domestic Product and it is one of the ways to find out how good the country’s economy is doing. Now GDP is value of all the goods and services produced in a country in an year. So if one says that GDP of Netherlands is 100 Billion Euros, it means that the value of all the goods(like Windmills, Computers, Machinery etc.) and services (like banking, telecom services, any service that is provided anywhere from a bar to a barber shop) produced in Netherlands for that year is 100 Billion Euros.
Then where does the percentage thing comes from? So here it goes if the GDP of Netherlands becomes 105 billion the next year then the GDP growth rate has been 5% for that year. So when we say that Chinese economy has been growing at 12% for the last few years it means that its GDP i.e. the value of all goods and services produced on the Chinese soil has been growing at 12% per year.
Actually, GDP is just one of the indicators of a country's economy and it can be misleading. For example if you wash your own clothes it is not calculated as a service and not counted as part of the GDP, but if you hire a domestic help for it and pay that person 100 per month then your country's GDP has grown by 100. This is one of many such criticisms of GDP, one can easily find more about it on the internet, but for that you need to know what GDP is and I hope that this article gives you some kind of an insight into it.
Some may even end up answering the question “What is India’s GDP ?” with a numerical figure in percentage (Say 8.5%). Now, it is for such people who, sans this article think that GDP is a percentage figure, that I am writing this article. Now GDP stands for Gross Domestic Product and it is one of the ways to find out how good the country’s economy is doing. Now GDP is value of all the goods and services produced in a country in an year. So if one says that GDP of Netherlands is 100 Billion Euros, it means that the value of all the goods(like Windmills, Computers, Machinery etc.) and services (like banking, telecom services, any service that is provided anywhere from a bar to a barber shop) produced in Netherlands for that year is 100 Billion Euros.
Then where does the percentage thing comes from? So here it goes if the GDP of Netherlands becomes 105 billion the next year then the GDP growth rate has been 5% for that year. So when we say that Chinese economy has been growing at 12% for the last few years it means that its GDP i.e. the value of all goods and services produced on the Chinese soil has been growing at 12% per year.
Actually, GDP is just one of the indicators of a country's economy and it can be misleading. For example if you wash your own clothes it is not calculated as a service and not counted as part of the GDP, but if you hire a domestic help for it and pay that person 100 per month then your country's GDP has grown by 100. This is one of many such criticisms of GDP, one can easily find more about it on the internet, but for that you need to know what GDP is and I hope that this article gives you some kind of an insight into it.
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