gross domestic product

Also known as: GDP

The gross domestic product (GDP for short) describes the economic performance of a state as the value of all goods and services traded or produced in the state on (legal) markets.

It is a measure of the value of all goods and services within a country in a certain period of time in a number.

Definition / explanation

To measure the performance of an economy via the gross domestic product has established itself as the most important economic variable for determining economic growth.

The gross domestic product records the values of all goods and services that were created within a country in a certain period of time (usually a year or a quarter) and were either traded on markets and are intended for this. Thus, only those goods and services that have a price are included in this calculation.

The domestic principle therefore counts for the gross domestic product. All benefits are taken into account that arise within the country's borders, both by residents in Germany and by foreigners in Germany. Consequently, benefits from residents abroad are not included in the calculation.

In addition, with the appropriate data, it is easily possible to use other geographic references and calculate a gross domestic product for them. A corresponding key figure can be determined for regions, federal states, an association of states (for example the EU or the euro zone) or for the world as a whole. Economic growth can be derived from the comparison of the development of the gross domestic product.

Criticism of the gross domestic product

It is critical that the gross domestic product does not take into account all economically relevant facts. Unpaid work such as housework, honorary positions and the like are not taken into account, as are undeclared work and the shadow economy.

The gross domestic product does not make any statements about a country's quality of life, assets, social structures, state resources or political stability. In order to be able to take some of these points into account, further economic indices have been developed.

Calculation of the gross domestic product

Es gibt drei verschiedene Möglichkeiten, um das Bruttoinlandsprodukt zu ermitteln: die Production calculation, die Verteilungsrechnung und die Usage calculation. Alle drei lassen sich aus der volkswirtschaftlichen Gesamtrechnung herleiten und führen rechnerisch zum gleichen Ergebnis.

Production calculation - The production calculation is based on the production side:

Value of all production

- advance payments

(= Gross value added)

+ Taxes on goods

- subsidies on products

= Gross domestic product

Usage calculation - The usage calculation is based on the consumption side:

Consumer spending of private households

+ government consumer spending

+ External contribution (exports - imports)

= Gross domestic product

Distribution calculation - Finally, the distribution calculation is based on income:

Compensation of employees

+ Corporate and property income

+ Production and import taxes

- production subsidies

+ Depreciation

(= National income)

- Balance of primary income from abroad

= Gross domestic product

Difference between nominal and real GDP

The gross domestic product can be calculated using nominal or real values.

Nominal gross domestic product - In the case of nominal gross domestic product, all values at current market prices are included in the calculation.

Real gross domestic product - In the case of real gross domestic product, the values determined are calculated, adjusted for inflation, on a specific base year (currently 2005). In this way, inflation-related changes in value are eliminated.

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