Gross Domestic product
There is a benchmark for judging the performance, for judging the performance of a student the standard of judgment is the marks obtained by him or her. Similarly for measuring or evaluating the economic performance of a country, the value of income or product originating in a country in a particular year is used as a determinant. Although many economists believe that income alone doesn’t determine the welfare of any person yet it is no doubt that income is one of the important determinant in man’s welfare.
Similarly in case of a nation study of GDP helps in determining the government that whether an economy is expanding or contracting, needs a boost or should be controlled or reined a bit, whether severe inflationary or deflationary pressures are round the corner. As correctly pointed by Samuelson and Nordhaus “ Much as satellite in space can survey the whether across the entire continent, so can the GDP give the overall picture of the state of the economy”. GDP is calculated by using following three methods-
Income Method - There are four major factors of production in an economy, land, labor, capital and entrepreneur. These factors of production are paid in return of their services in the form of factor incomes. Thus, labor gets wages, land gets rent, capital gets interest and entrepreneur gets profit. But only incomes earned by primary factors of production are included and all the transfer incomes are excluded like pension, gratuity etc of retired workers.
Output Method- In this method, the value added by the each firm in the economy is
Calculated. Value added is total sales- Purchases of raw materials or components. But
The purchase of fixed inputs like machinery and building etc. is not deducted. Value
Added is used instead of value of sales to avoid double counting.
Expenditure Method- Under expenditure method the total expenditure on consumer
Goods and capital goods by...