Эссе на тему: "Methods of calculating GDP. GDP as a good measure of economic welfare"

Эссе «Methods of calculating GDP. GDP as a good measure of economic

welfare»

It is possible to understand what is happening in the economy through
economic indicators. One of the main ones is GDP (gross domestic product). It
reflects the growth and state of the entire economy of the country, since it is the
amount of income from products produced in the country and services performed.
It is calculated monthly to monitor changes in production and the economy.
A sharp drop indicates a decrease in purchasing power and a drop in production
rates. Gross domestic product is the sum of the market value of all final products
produced in the country during a calendar year. All spheres of the economy are
taken into account, as well as goods produced for both domestic consumption and
export.
As for the calculations, calculations are made by three main methods.
Knowing the calculation methods, it is possible to understand how GDP is formed,
what is included in it and what is the relationship between the development of
production, the development of the economy and the standard of living of the
population. Each of the three types of calculations should lead to one result, but
along the way each of them solves additional tasks, so the choice depends on the
tasks set.
GDP can be calculated by three methods: The Production (Output)
Approach, the Expenditure Approach and the Income Approach.
The first method is the Production (Output) Approach. When calculating
GDP by the production method, only final goods and services are taken to exclude
doubling in calculations and overestimation of GDP. Intermediate goods, which
are raw materials for the production of final products, are not taken into account.
To exclude doubling, the method of added value is used in calculations. That
is, they calculate the difference between the price of products and the costs of its
production (materials, tools, fuel, electricity, services of other firms). The country's
GDP is the sum of the added values of all firms from all industries. The assignment

will affect the size of the markup and costs. You can raise the added value by
increasing the margin, which will affect the final cost, or reduce the cost part.
The second is the Expenditure Approach. The expenditure approach, also
known as the spending approach, calculates spending by the different groups that
participate in the economy.
All of these activities contribute to the GDP of a country. Consumption
refers to private consumption expenditures or consumer spending. Consumers
spend money to acquire goods and services, such as groceries and haircuts.
Consumer spending is the biggest component of GDP. Consumer confidence,
therefore, has a very significant bearing on economic growth.
Government spending represents government consumption expenditure and
gross investment. Governments spend money on equipment, infrastructure, and
payroll. Government spending may become more important relative to other
components of a country’s GDP when consumer spending and business investment
both decline sharply.
Investment refers to private domestic investment or capital expenditures.
Businesses spend money to invest in their business activities. For example, a
business may buy machinery. Business investment is a critical component of GDP
since it increases the productive capacity of an economy and boosts employment
levels. The Income Approach reflects the income of all entities (salary, other
income, rent and other) that carry out their activities in the country. It turns out that
with this method, it is necessary to take into account, among other things, the
income of non-residents, if they are received within the geographical boundaries of
the state. In addition to the main task, this method shows a shortage of production
or surplus provision.
All three methods should eventually give the same results. GDP estimates
are being revised, which expresses a cyclical method of calculations. At the first
stage, primary reports and forecasts are analyzed for a quick assessment of the
situation in the country, the dynamics of development and production volumes.
Then the data is refined. The most important indicator is the annual estimate. For

this purpose, a «Regulation for the development and presentation of data on gross
domestic product» has been created, which defines the methods of calculation and
deadlines for data delivery.