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GDP- Measurement of dynamics of a Market
The gross domestic product (GDP) is one of the primary
indicators used togauge the health of a country's economy. It
represents the total dollar value ofall goods and services produced
over a specific time period - you can think of it as
the size of the economy. Usually, GDP is expressed as a
comparison to the previousquarter or year. For example, if the
year-to-year GDP is up by 3%, it means that theeconomy has grown by
3% over the last year.
GDP can be determined in three ways, all of which should, in
principle, give thesame result:
They are the product (or output) approach, the income approach,
and theexpenditure approachThe most direct of the three is the
product approach, which sums the outputs ofevery class of
enterprise to arrive at the total. The expenditure approach works
onthe principle that all of the product must be bought by somebody,
therefore the
value of the total product must be equal to people's total
expenditures in buyingthings. The income approach works on the
principle that the incomes of theproductive factors must be equal
to the value of their product, and determines GDPby finding the sum
of all producers' incomes.
Let us understand that, if there are so many complications
involved then, why is itso important to calculate GDP? Well, GDP
represents economic production & growthand it has a large
impact on nearly everyone within that economy. For example,when the
economy is healthy, one can clearly see low unemployment and
wagesincrement as businesses demand labor to meet the growing
economy. A significantchange in GDP, whether up or down, usually
has a significant effect on the stock
market. It's not hard to understand why: a bad economy usually
means lower profitsfor companies, which in turn means lower stock
prices. Investors really worry aboutnegative GDP growth, which is
one of the factors economists use to determinewhether an economy is
in a recession.
GDP is widely used by economists to gauge economic recession and
recovery and aneconomies general monetary ability address
externalities. It is used by the banks todetermine interest rates.
GDP serves as a general metric for a nominal monetarystandard of
living. It is a neutral measure which merely shows an economy's
generalability to pay for externalities such as social and
environmental concerns.
According to International Monetary Fund (IMF), World Bank and
CIA World Fact
book India was on third ranking in terms of highest GDP (PPP)
with a GDP of around1.842 trillion Dollars in the year 2012. Hence,
it is very clear that being a majorconstituent of World economy
Indias GDP has a significant impact on Worlds GDP.
