GDP & National Income

GDP & National Income

Gross Domestic Product

The volume of products and services at market value established for a certain period as a result of production activities of economic units that are resident in the country. Residents understood the economic units (enterprises and households) with the center of economic activity in the economic territory of the country. GDP is defined as the price of domestically produced final goods and services, i.e. goods and services used for final consumption.

The cost of intermediate goods and services purchased and used in manufacturing, GDP is not included. Because the final products in its main part to human consumption, and accumulation ensure economic development, GDP is used as an indicator on the level of welfare. In addition, GDP can also be defined as gross value added. Added value characterizes the contribution to the cost of products made ??in factories. Added value, calculated according to a separate entity, characterized by its contribution to the production of a product or service in an environment where they create a division of labor is the result of many companies cooperated (Plosser, 1989).

GDP is created using the fixed capital, which in the production process wear and morally obsolete. The share of consumption of fixed capital accounted for approximately 10% of GDP. In theory, depreciation should be excluded because it represents an added value, and characterizes the cost of capital consumed in production. However, the definition of wear is associated with difficult to overcome the problems of calculating the "replacement cost of fixed assets. Therefore, the cost of consumption of fixed capital made ??to include in GDP.

This makes it more comparable when comparing data from individual countries (Bureau of Economic Analysis, 2007).

Gross domestic product is the main indicator used to determine the level and pace of economic development. The increase in GDP is accompanied by an increase in employment and improved living standards, resulting in increased consumption of goods and services. The increase in GDP is determined by investments, their share in GDP and exceeding the total investment over the value of capital consumed during the manufacturing process. Periods of economic growth can be replaced by decline in production, employment, reduction of per capita GDP and, accordingly, the standard of living. However, if we consider the development over long periods, it is obvious that the basis for raising the living standards of the population is increased production of goods and services (GDP) in general and per capita (Lequiller, François; Derek Blades, 2006).

Leading factors of GDP growth are involved in the production of additional resources (primarily additional physical capital and labor), as well as increase productivity of factors of production through technological progress, the use of more productive technologies and training workers.

There are three theoretical methods of calculating GDP equivalent: (1) Method of Expenditure, (2) Method of Income and (3) Method of Value Added.

Expenditure Method

GDP is the sum of all expenditures made for the purchase of goods and services produced within an economy, ...