GDP in Dictionary

What is GDP?

According to AbbreviationFinder, GDP stands for Gross Domestic Product which corresponds to the set of all goods and services produced within the borders of a region or country.

This sum takes into account all production over a period, normally one year, and the result can be analyzed for the country’s macroeconomic situation.

In addition, the goods and services produced are not considered as intermediaries, which serve to produce other goods, or products that already exist, as in the sale of used cars, for example.

When the entire value of the product is divided by the number of inhabitants of the country or region, it is known as GDP per capita, which can indicate the quality of life in each economy.

How GDP is measured

To measure GDP, it is possible to analyze the product by three means that demonstrate the same value for the wealth that was generated by the agents in the economy: expenditure, income or production.

GDP measured by expenditure

From this point of view, the value of the product is measured through all the expenditure made by the different agents of the economy, considering:

  • C – consumption expenditure that occurs through families;
  • G – expenditure that occurs when the State makes public expenditure;
  • I – expenditure on investments made by companies;
  • X – export expenses through foreigners;
  • Q – import expenses incurred by agents in the economy.

Through this view, a large sum of all expenditure within the analyzed period is listed, as in the formula:

GDP = C + G + I + X – Q

Imports (Q) appear in the formula as a deduction from agents’ expenses on products and services that originate abroad and do not count as a country product.

GDP measured by income

In this light, the income that was generated and distributed to economic agents during the period is considered.

With the production of companies, for example, factors are remunerated and generate income through wages to workers. Therefore, the following are considered in this calculation:

  • S – income through wages;
  • R – income through leases;
  • L – profit from profits;
  • J – income attributed to interest;
  • A – income through depreciation;
  • T – income to the State through indirect taxes, less production subsidies (Z).

The formula results in a general sum of all income generated in the period:

GDP = S + R + L + J + A + (T – Z)

In addition to being considered as public income, with the sum of indirect taxes, GDP is now at market prices, considering the production available to the market.

GDP measured by production

According to this view, GDP is directly measured by the production of economic agents that is sold on the goods and services market.

The measurement method considers the sum of all gross value added (GVA) during the period, plus taxes collected on final sales, minus subsidies granted:

GDP = ΣVAB + Taxes on products and services net of subsidies

The method through the added value allows that there is no multiple count in the production and distribution of goods, as can be seen in the example below for the production that results in the production of bread

Phases of the production process Final product (for one thousand kg) added value
Wheat extraction R $ 15.00 R $ 15.00
Flour production R $ 33.50 R $ 18.50
Bread production R $ 49.00 R $ 15.50
Total = R $ 49.00

In this case, if there was a double count, the GDP of this production would be overvalued by a final product that would reach R $ 97.50 since it would be added to the method.

Nominal GDP and real GDP

When obtaining the value of the Gross Domestic Product that was measured, it is possible to begin to make analyzes regarding the growth of the product in the economy, and for that, the study is better with the analyzed real GDP.

Nominal GDP is the value analyzed considering current prices for the calculated period, and in the case of high prices, it is possible that the product has not actually grown.

For this, it is necessary to consider the real GDP, which is the product where prices are fixed in a base year, and the quantity produced in the current year.

The division of nominal GDP by real GDP results in a deflator that serves as an option for the value of the country’s price index.

Difference between GDP and GNP

GDP differs from the Gross National Product (GNP) in terms of what is considered the economic space and the economic agents of the country or region.

For GDP, production within the economic territory is considered, regardless of whether it came from multinational companies installed in the country.

In contrast, the GNP considers production from economic agents in the country, even for goods and services companies that are installed in other countries.

In the case of Brazil, for example, GDP quantifies the wealth generated by all those residing in the country, regardless of nationality, while the GNP shows the wealth generated by national agents, regardless of where they produce.

GDP of Brazil

In Brazil, the Gross Domestic Product is measured and released by the Brazilian Institute of Geography and Statistics (IBGE) every year.

In 2017, Brazilian GDP reached R $ 6.558 trillion in current values, or US $ 2.056 trillion, while GDP per capita was US $ 10.888,98 according to the World Bank.