√ Gross Domestic Product: Definition, Types and Formulas
Gross Domestic Product: Definition, Types and Formulas - On this occasion About Knowledge will discuss about Gross Domestic Product. Which in this discussion explains the meaning of gross domestic product, its functions, types and formulas briefly and clearly. For more details, see the following article.
Gross Domestic Product: Definition, Types and Formulas
Gross Domestic Product (GDP) in English is Gross Domestic Product (GDP). GDP in a country, the economic performance in that country is also considered to be getting better. In other words, GDP is an indicator of the level of economic growth in a country.
Definition of Gross Domestic Product (GDP)
The definition of gross domestic product is the sum of the total value of goods and services produced in a country. In a certain period (generally it is one year) and is used as a benchmark for the level of economic growth in that country.
Economic activity in a country will produce goods and services produced by its citizens, state companies and private companies. In this case the private company is a foreign and domestic company operating in the territory of Indonesia.
Definition of Gross Domestic Product According to Experts
In order to better understand what Gross Domestic Product (GDP) or Gross Domestic Product (GDP) means. So we can refer to the opinions of several experts below, among others:
Prasety According to Prasetyo
According to Prasetyo According to Prasetyo, the definition of Gross Domestic Product is all goods and services produced/produced by all citizens. Where in a region of the country concerned (including the production of foreign nationals in that country) in a certain period, usually in one year.
According to Sadono
According to Sadono, the definition of Gross Domestic Product is the total value of all goods and services produced in the region within a certain period of time (usually per year). The Gross Domestic Product calculates the output of an economy regardless of who owns the factors of production.
According to Herlambang et al
According to Herlambang et al, Gross Domestic Product/GDP is the total income generated within a country, including the income of foreigners working in a country. Gross Domestic Product measures the value of goods and services produced in a country (domestic) area regardless of nationality in a certain period.
According to Mankiw
According to Mankiw, the definition of Gross Domestic Product is the amount of goods and services produced by a country in one year. Gross Domestic Product measures the total value of a country's goods and services regardless of nationality.
According to McEachern
According to McEachern, the definition of Gross Domestic Product or GDP is the total market value of final goods and services produced by a resource located within that country for a specified period of time, usually one year. Gross Domestic Product (GDP) can also be used to study the economy over time.
Gross Domestic Product Function
In accordance with the definition of Gross Domestic Product described above, this Gross Domestic Product (GDP) can function as an indicator of a country's economic growth. The explanation of the function of the Gross Domestic Product includes the following:
Gross Domestic Product (GDP) is calculated based on the total value added (value added) generated by all activities or production activities. In this case, the growth of Gross Domestic Product indicates an increase in remuneration for production factors.
Gross Domestic Product (GDP) is calculated using the circular flow concept. The point is, the calculation of Gross Domestic Product includes the total value of the product produced within a certain period (generally one year) and does not include calculations on the period previously.
By using the concept of flow in calculating this Gross Domestic Product, we can compare the amount of output in 1 (one) period with the previous period.
The limit of the GDP calculation area is one country (domestic economy). This makes it possible to measure the effectiveness of an economic policy implemented by the government in an effort to encourage domestic economic activities.
GDP Types
According to McEachern (2000: 146), there are two types of Gross Domestic Product (GDP), including the following:
Real Gross Domestic Product/ Fixed Price
Real Gross Domestic Product/Fixed Prices is the total price value of goods and services produced by a country within a certain period (generally it's one year) and valued based on the price prevailing in that period certain.
Nominal Gross Domestic Product/ Current Prices
Nominal Gross Domestic Product / Current Price, this is the total value of the price of goods and services produced by a country in a certain period of time and valued according to the price in effect at the time it was made evaluation.
Gross Domestic Product Calculation Approach
According to Fair and Case (2008: 35), this Gross Domestic Product (GDP) calculation approach can be done in several ways. Referring to the definition of GDP, below are three ways to approach the calculation of Gross Domestic Product, including the following:
Revenue Approach
This income approach is a method or way of calculating GDP by calculating income such as wages, rent, interest, and profits received by each factor of production in producing goods end.
Formula :
GDP = National Income + Depreciation + (Indirect Taxes – Subsidies) + Net Factor Payments to Foreign Countries
Components of the income approach
- National income is the total income received by factors of production within a country.
- National income includes company profits, employee compensation, net interest, as well as rental income.
- Depreciation or depreciation of capital assets, referred to as impairment.
- Indirect taxes, such as sales tax, customs duties, license fees. Subsidies are payments by the government without obtaining goods or services in return.
- This net factor payment to abroad is a payment of income on factors of production for abroad minus the receipt of factor income from abroad.
Expenditure Approach
The Expenditure Approach is a way of calculating GDP by measuring the total expenditure on all final goods in a certain period of time (generally one year).
Formula:
GDP = Consumption + Investment + (Consumption and Government Investment) + (Export – Import)
Components of the spending approach
- Consumption in this GDP is household or personal consumption, namely services, durable goods, non-durable goods.
- Investment from households or companies for new capital, for example, is like factories, inventories, equipment, and others.
- This government consumption and investment includes the federal, state, and local governments, to purchase services and final goods.
- Net Exports is the difference between exports and imports. This component is added because GDP only counts domestic goods and services.
Production Approach
The production approach is a way of calculating a country's GDP by measuring the value of its production produced by the factors of production in a country, whether it is its own citizens or also owned foreigner.
Formula :
GDP = Rent + Wages + Interest + Profit
Thus the explanation about Gross Domestic Product: Definition, Types and Formulas. Hopefully it can be useful and add to your insight. Thank You.
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