May 17, 2017 @ 03:40 PM

May 17, 2017 @ 03:40 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

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GDP Measurement of dynamics of a Market

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The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up by 3%, it means that the economy has grown by 3% over the last year.
GDP can be determined in three ways, all of which should, in principle, give the same result :
They are the product (or output) approach, the income approach, and the expenditure approach
The most direct of the three is the product approach, which sums the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of the product must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes.
Let us understand that, if there are so many complications involved then, why is it so important to calculate GDP? Well, GDP represents economic production & growth and it has a large impact on nearly everyone within that economy. For example, when the economy is healthy, one can clearly see low unemployment and wage’s increment as businesses demand labor to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It's not hard to understand why: a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.
GDP is widely used by economists to gauge economic recession and recovery and an economies general monetary ability address externalities. It is used by the banks to determine interest rates. GDP serves as a general metric for a nominal monetary standard of living. It is a neutral measure which merely shows an economy's general ability to pay for externalities such as social and environmental concerns.
India's economy as measured by GDP could not grow more than 7.7 per cent in the first quarter of this fiscal year, mainly due to poor performance of the manufacturing sector. However, economic growth, as measured by the Gross Domestic Product, improved to 8.5 per cent in 2010-11 from 8 per cent in 2009-10 due to better farm output and construction activities and financial services performance. The government has projected overall economic growth in the current fiscal at around 8.5 per cent, while the Reserve Bank has projected the growth to 8 per cent from 8.5 per cent in the fiscal year 2011.
According to International Monetary Fund(IMF), World Bank and CIA World Factbook India was on fourth ranking in terms of highest GDP(PPP) with a GDP of around 4,060,392 Million Dollar in the year 2010. Hence, it is very clear that being a major constituent of World economy India’s GDP has a significant impact on World’s GDP.
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