The Economic Theory And Concepts Of The Gross Domestic Product

THEORY OR CONCEPTS
The economy concept or theory related to the article is the Gross Domestic Product. Gross Domestic Product (GDP) measures the commercial value of the final goods and services that are produced in a country within a given period of time. It calculates all of total of the output such as goods and services that are produced only inside the border of one country. GDP includes only goods and services that are produced for a purpose which is to be sold in the market. However, it does not include items that are produced at home and also is used or consumed at home and never enter any economy market. It also does not included illicit and illegal goods and services such as illegal drugs and items in the market. For example, work

If the GDP minus the depreciation of the capital stock, the value of the net domestic product. Hypothetically, GDP can be seen in three different ways .The three different ways are called the production approach, the expenditure approach and the income approach. In GDP, the production of output approach calculates and total up the “value-added” at every process of production in which the “value-added” means the total of sales minus the value of intermediate inputs that are used in the production process. As an illustration, sugar, flour and egg are the intermediate inputs while cake is the final product which will be sold in the market. Other than that, the expenditure approach sums up the value of purchases that are done by final consumers in the economy market. For instance, the consumption of food and drinks, the investment on physical capital such as administration building and tools that are used to build machinery which are used in production of outputs. Apart from that, the income approach adds up the income which are gained through

However, due to the fact that GDP is measured in either current or nominal prices, we cannot differentiate two length of time without adjusting for inflation. In order to calculate the real Gross Domestic Product, the nominal GDP level have to be changed accordingly to the changes in price of goods and services so that we will be able to determine on whether the total output of goods and services produced has increased because a higher number of output is produced or is it because of the increase in price only. A GDP deflator is used to adjust the GDP from nominal to constant prices. GDP have an important and significant role in the economy. One of the reason why GDP is important is GDP provides us information about the size and performance of an economy in the country. The growth rate of real GDP is frequently used to indicate the well-being of an economy. If the value of the real GDP is increasing at a rapid rate, companies and organization will most likely hire more employees for their production process and this will increase the employment rate in a country. When the value of GDP decreases, unemployment rate usually increases. However, all of these are subject to the situation in a country. For example, the value of GDP increases in a period of time but it does not increase at a rapid enough rate