Measuring GDP

Measuring GDP
Measuring GDP
Definition of GDP
Methods of Calculating GDP
Key Terms

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Measuring GDP
To measure national income or GDP, we must know:
Total value of the output of goods and services
produced in a country
Total amount of expenditure taking place in the
economy
Total amount of income generated through
production of goods and services

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Definition of GDP
What is GDP?
GDP stands for GROSS DOMESTIC PRODUCT
Definition of GDP
The market value of all the final goods and services
produced within a country in a given time period.
This definition has four (4) parts:
Market value
Final goods and services
Produced within a country
In a given time period

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Definition of GDP
Market value
The prices at which each item is traded in markets
Look at the price tag
Final goods and services
A final good (or service) is an item that is bought
by its final user during a specified time period
Examples of final goods?

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Definition of GDP
Produced within a country
Goods and services that are produced in Malaysia
only.
Regardless who own the factor of productions use
in producing those goods.
In a given time period
Normally quarter of a year (quarterly GDP) or a
year (annually GDP).Only counted goods &
services produced in that particular year.

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Definition of GDP - Exception
Only goods & services that pass through organized
markets count in the GDP. Those that didnt are not
counted.
Examples:
Illegal activities
Housework
Do-it-yourself repairs
Why not counted?
They all lack that important measuring rod i.e
MARKET PRICE

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GDP The Importance
The importance of measuring GDP:
To identify the rate of economic growth
Real GDP
To identify changes to overall living standards of
the population
GDP per capita
To look at the distribution of national income (i.e.
measuring income and wealth inequalities)

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Methods of Calculating GDP
The Expenditure Method (Aggregate Demand)
The Income Method (Sum of Factor Income)

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The Expenditure Method
The sum of the final expenditure on goods and
services produced, measured at current market price
(value).
The equation for GDP using this approach is:
GDP = C + I + G + (X M)

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The Expenditure Method
C consumption expenditure
Expenditures by households on goods and services
I investment (gross private domestic investment)
Expenditure on capital equipment and buildings by
firms
Expenditure on new homes by households
G government purchases
Purchases of goods and services by all levels of
government
Salary paid to government servants
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The Expenditure Method
(X- M) net exports
The value of exports minus the value of
imports
(of goods and services)

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The Expenditure Method
Calculation GDP for 2003:

Item Symbol Amount

(billions of ringgit)
Personal Consumption C 7,674
Expenditure
Gross Private Domestic I 1,624
Investment
Government Purchases G 2, 054
Net exports (x M) - 505
Y 10,847

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The Income Method
The sum of incomes that firms pay households for
the factors of production they hire, i.e.:
Wages for labour
Interest for capital
Rent for land
Profits for entrepreneurship

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The Income Method
This method divide incomes into five (5) categories:
Compensation of employees: the payment for
labour services (salary/wages)
Net interest: the interest households receive on
loans they make minus the interest households
pay on their own borrowing
Rental income: the payment for the use of land
and other rented resources

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The Income Method
Corporate profits: the profits of corporations, some of
which are paid to households in the form of dividends
and some of which are undistributed profits (retained
earning)
Corporate Profits = Dividends + Retained Earning+

Corporate Income Tax

Proprietors income: the profits earned by sole
proprietorship owners

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The Income Method
Calculation:
Item Amount
(billions of ringgit)
Compensation of employees 6,165
Net interest 582
Rental income 153
Corporate profits 1,023
Proprietors income 839
Indirect taxes Less Subsidies 782
Capital consumption 1,303
(depreciation)
GDP 10,847

* The sum of all incomes is called Net Domestic Income at factor cost.
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