Gross domestic product. Ways to measure GDP

Gross Domestic Product (GDP)

Gross National Product (Gross National Product) - is the aggregate market value of all final goods and services produced in the economy (within the country) for one year.

Let us analyze each word of this definition:

• Cumulative. GDP is an aggregate indicator characterizing total production, total output.
• Market The cost of GDP includes only official market transactions, i.e. who have gone through the sale process and have been officially registered. Therefore, the GNP does not include:

  a) work for yourself (a person builds a house for himself, knits a sweater, repairs an apartment, the master himself repairs a TV or a car, a hairdresser does his hair);

  b) work at no cost (friendly assistance to a neighbor to repair a fence, make a friend a repair, bring a friend to the airport);

  c) the cost of goods and services produced by the “shadow economy”.

  Although the sale of products produced in secret is a market transaction, it is not officially registered or recorded by the tax authorities. The volume of production of this "sector" of the economy is in developed countries from one third to one half of total output. Under the shadow economy refers to those types of production and activities that are not officially registered and not taken into account by the national statistical and tax services. Thus, the shadow economy includes not only illegal activities (drug business, underground dens and gambling houses), but also completely legal types, the profits from which, however, are covered from paying taxes. For estimating the share of the shadow economy, there are no direct methods of counting, and, as a rule, indirect methods are used, such as additional consumption of electricity in excess of officially spent and additional money supply (amount of money) in circulation above what is needed to service official transactions.

• Cost GDP measures total production in monetary terms, i.e. in value form, since otherwise it is impossible to stack apples with sheepskin coats, cars, computers, CD players, pepsi, etc. Money serves as a measure of the value of all goods, which makes it possible to evaluate and measure the values ​​of all the various types of goods and services produced by the economy.
• The end. All products manufactured by the economy are divided into final and intermediate. End products are products that go to final consumption and are not intended for further production processing or resale. Intermediate products go to the further process of production or resale. As a rule, raw materials, materials, semi-finished products, etc. are intermediate products. However, depending on the method of use, the same product may be an intermediate or final product. So, for example, meat bought by a housewife for borsch is the final product, since it went to final consumption, and meat bought by McDonalds restaurant is intermediate, as it will be processed and invested in a cheeseburger, which will in this case be the final product. All resale (sales of used items) are also not included in the GDP, since their value has already been taken into account once at the time of their first purchase by the final consumer.

  Only the value of final products is included in GDP in order to avoid double (double) counting. The fact is that, for example, the cost of a car includes the cost of iron from which steel is made; steel from which you get rolled; rental of the car. The cost of the final product is therefore calculated at the added value. Consider this by example. Suppose a farmer raised grain, sold it to a miller for $ 5, which ground the grain into flour. He sold flour to a baker for $ 8, who made dough from flour and baked bread. Baker sold the baker to the baker for $ 17, which sold bread to the buyer for $ 25. Grains for the miller, flour for the baker, pastries for the baker are intermediate products, and the bread that the baker sold to the buyer is the final product.

  Table 1. Value Added

  grain $ 5 $ 0 $ 5

  flour $ 8 $ 5 $ 3

  dough $ 17 $ 8 $ 9

  bread $ 25 $ 17 $ 8

  Total: $ 55 $ 30 $ 25

  The first column shows the cost of all sales (total sales of all economic agents), equal to $ 55 (total output). In the second - the cost of intermediate products ($ 30), and in the third - the amount of added value ($ 25). Thus, value added is the net contribution of each producer (firm) to total production. The sum of the added values ​​($ 25) is equal to the value of the final product, i.e. the amount that the final consumer paid ($ 25). Therefore, to avoid double counting, only value added equal to the value of the final product is included in the GNP. Value added is the difference between total sales revenue and the cost of intermediate products (that is, the cost of raw materials and materials that each manufacturer (firm) buys from other firms). In our example: 55 - 30 = 25 ($). In this case, all the internal costs of the company (for the payment of wages, depreciation, rental capital, etc.), as well as the profit of the company are included in the value added.

• Goods and services. Anything that is not a product or service is not included in GDP. Those payments that are not made in exchange for goods and services are not included in the value of GDP. Such payments include transfer payments and non-productive (financial) transactions. Transfer payments are divided into private and public and constitute a gift. Private transfers include, first of all, payments that parents make to children; gifts that relatives make to each other, etc. Government transfers are payments that the state makes to households through the social security system and to firms in the form of subsidies. Transfers are not included in the cost of GDP: 1) since transfers are not worth paying for either the goods or services, i.e. as a result of this payment, there is no change in the value of GDP, i.e. nothing new is produced, and total income is only redistributed; 2) to avoid double counting, since transfer payments are included in household consumption expenditures (this is part of their disposable income) and in firms' investment expenditures (as subsidies). Financial transactions include the purchase and sale of securities (stocks and bonds) in the stock market. Since a security also does not pay for goods or services, these transactions do not change the value of GDP and are the result of the redistribution of funds between economic agents. (It should be borne in mind that the payment of income on securities is necessarily included in the cost of GDP, since it is a payment for an economic resource, that is, a factor income, a part of national income).
• Produced in the economy (domestically). This statement is important in order to understand the difference between the gross domestic product indicator (Gross Domestic Product) - GDP - and the gross national product (Gross National Product) - GNP. GNP is the aggregate market value of all final goods and services produced by citizens of the country with the help of their own, i.e. national factors of production, it does not matter in the territory of a given country or in other countries. In determining GDP, the criterion is the factor of nationality. And GDP is the cumulative market value of all final goods and services produced in a given country, no matter with the help of national or foreign factors of production. In determining the GDP criterion is the territorial factor. In most developed countries, the difference between GDP and GNP does not exceed 1%. The difference between these indicators is significant for countries receiving high services provided by them to citizens of other countries (for example, tourism services - Cyprus, Greece, Malta, etc. - or banking services - Luxembourg, Switzerland).
• For one year. In accordance with this condition, all goods produced in previous years, decades, epochs are not taken into account when calculating GDP, since they have already been taken into account in the value of GDP for the respective years. Therefore, to avoid double counting, only the value of the volume of production of a given year is included in GDP.

Methods for measuring gross domestic product (GDP)

Three methods can be used to calculate GDP:

1. by cost (end use method);
2. income (distribution method);
3. value added (production method).

Using these methods gives the same result, because in economics, total income is equal to the value of total expenses, and value added is equal to the cost of final products, while the value of the value of final products is nothing more than the sum of expenses of final consumers to purchase the total product.

GDP "BY COSTS"

GDP calculated by expenditure is the sum of expenditures of all macroeconomic agents, since in this case it is taken into account who acted as the final consumer of goods and services produced in the economy, who spent the money to buy them. When calculating GDP by expenditure are summarized:

household spending (consumer spending - C) + firms spending (investment spending - I) + government spending (government purchases of goods and services - G) + foreign spending (net exports), denoted by Xn (net export)

• Consumer spending (consumption spending - C) is household spending on the purchase of goods and services. They range from 2/3 to 3/4 of total expenses, are the main component of total expenses and include: - expenses for current consumption, i.e. for the purchase of goods for short-term use (these include goods serving less than one year, but it should however be noted that all clothes, regardless of the period of their actual use - 1 day or 5 years - relate to current consumption); - the cost of durable goods, i.e. goods serving more than one year (these include furniture, household appliances, cars, yachts, private jets, etc., with the exception of the cost of buying a home, which is considered not household consumption, but household investment expenditure); - the cost of services (modern life can not be imagined without a large range of services, and the proportion of the cost of services in the total consumer spending is constantly increasing). In this way,

Consumer spending = household spending on current consumption + spending on durable goods (excluding household spending on home purchase) + spending on services

• Investment expenses (investment spending - I) are expenses of firms and on the purchase of investment goods. Under the investment goods refers to goods that increase the stock of capital. Investment expenses include:

- investments in fixed assets, which consist of the expenses of firms: a) for the purchase of equipment and b) for industrial construction (industrial buildings and facilities);

- investment in housing (household spending on the purchase of housing);

- investments in stocks (inventories include: a) stocks of raw materials and materials necessary to ensure the continuity of the production process; b) unfinished production, which is associated with the technology of the production process; c) stocks of finished (manufactured by the company), but not yet sold products.

Investments in fixed capital and investments in housing are fixed investment (fixed investment). Inventory investment (inventory investment) is the changing part of investment, and when calculating expenditure, it’s not the value of the inventory itself that is included in the GDP, but the amount of inventory change that occurred during the year. If the value of reserves has increased, then the GDP will increase by an appropriate amount, since this means that in this year additional investments have been made that have increased reserves. If the value of stocks has decreased, which means that the products sold and replenished stocks in the previous year were sold in a given year, therefore, the GDP of a given year should be reduced by the amount of inventory reduction. Thus, investment in stocks can be both positive and negative.

When calculating GDP by expenditure, investment means gross domestic private investment. Gross investments (gross investment - Igross) are cumulative investments, including both recovery investments (depreciation - depreciation - A) and net investments (net investment - Inet): I gross = A + I net This division of investments is related to features of the functioning of fixed capital. The fact is that in the course of its use, fixed capital wears out, “consumes” and requires replacement, “restoration” of depreciation. That part of the investment, which is used to compensate for the depreciation of fixed capital, is called recovery investment or depreciation. In the system of national accounts, they are called “capital consumption allowances”, which can be translated as “cost of consumed capital” or “consumption of fixed capital” in the economy. Thus, the division of investments into net investments and depreciation is related only to fixed capital. Stock investment is a net investment.

Net investment is an additional investment that increases the size of the capital of firms. The value of net investment lies in the fact that they are the basis of the expansion of production, growth in output. If there is a net investment in the economy, I net> 0, i.e. gross investment exceeds depreciation (recovery investment), I gross> A, this means that in each of the following year the real production volume will be higher than in the previous one. If gross investment equals amortization I gross = A, i.e. I net = 0, then this is the situation of the so-called “zero” growth, when the economy in each subsequent year produces the same amount as in the previous one. If net investment is negative I net <0, then in the economy even compensation of capital depreciation I gross <A is not provided. This is a “falling” economy, that is, an economy that is in a state of deep crisis.

NET INVESTMENTS = net fixed investment + net investment in housing + stock investment

GROSS INVESTMENT = net investment + depreciation (cost of capital consumed)

Investment expenses in the system of national accounts include only private investment, i.e. investment by private firms (private sector), and does not include government investment, which is part of government procurement of goods and services.

It should also be borne in mind that in this component of total expenditure only domestic investment is taken into account, i.e. investment resident firms in the economy of this country. Foreign investments of resident firms (foreign investments) and investments of foreign firms in the economy of a given country are included in such a component of total expenses as net exports. If the value of net exports is negative, then this corresponds to the fact that net foreign investment is negative. If net exports are positive, then net foreign investment is positive.

• The third element of total expenses is government purchases of goods and services (government spending - G), which include:

- government consumption (expenditures on the maintenance of state institutions and organizations that provide for the regulation of the economy, security and law and order, political management, social and production infrastructure, as well as payment for services (salaries) of public sector employees);

- public investment (investment expenses of state enterprises)

The concept of “government procurement of goods and services” (government spending) and the concept of “government spending” (government spendings) should be distinguished. The latter concept also includes transfer payments and interest payments on government bonds, which, as already noted, are not taken into account in GDP, since they are neither a commodity nor a service, are not provided in exchange for goods and services and are the result of the redistribution of total income.

• Net export The last element of total expenditure is net export (net export - Xn). It represents the difference between export earnings (export - Ex) and expenditures on imports (import - Im) of the country and corresponds to the trade balance: Xn = Ex - Im.

GDP expenditure = consumer spending (C) + gross investment spending (I gross) + government procurement (G) + net exports (Xn)

GDP "ON INCOME"

The second method of calculating GDP is the distributive method or the method of calculating income. In this case, GDP is considered as the sum of incomes of owners of economic resources (households), i.e. as the sum of factor incomes. Factor incomes are:

• Wages and salaries of employees (wages and salaries) of private firms, representing income from the “labor” factor, i.e. payment for labor services and including all forms of remuneration for labor, including basic wages, bonuses, all types of material incentives, overtime pay, etc. (the salary of civil servants is not included in this indicator, since it is paid from the state budget (budget revenues) and is part of public procurement, and not a factor income);

• Арендная плата или рента (rental payments) – доход от фактора «земля» и включающая в себя платежи, полученные владельцами недвижимости (земельных участков, жилых и нежилых помещений) (при этом, если домовладелец не сдает в аренду принадлежащие ему помещения, то в системе национальных счетов при подсчете по доходам в ВНП учитываются доходы, которые мог бы получать этот домовладелец, если бы он предоставлял эти помещения в аренду; подобные вмененные доходы носят название «условно начисленной арендной платы» и включаются в общую сумму рентных платежей;

• Процентные платежи или процент (percent payments), являющиеся доходом от капитала, платой за пользование капиталом, используемым в процессе производства (поэтому в сумму процентных платежей включаются проценты, выплаченные по облигациям частных фирм, но не включаются проценты, выплаченные по государственным облигациям (так называемое «обслуживание государственного долга»), поскольку государственные облигации выпускаются не с производственными целями, а с целью финансирования дефицита государственного бюджета);

• Прибыль, т.е. доход от фактора «предпринимательские способности». В системе национальных счетов прибыль делится на две части в соответствии с организационно-правовой формой предприятий:

- прибыль некорпоративного сектора экономики, включающего единоличные (индивидуальные) фирмы и партнерств (этот вид прибыли носит название «доходы собственников» (proprietors' income);

- прибыль корпоративного сектора экономики, основанного на акционерной форме собственности (акционерном капитале) (этот вид прибыли называется «прибыль корпораций». Прибыль корпораций делится на три части: 1) налог на прибыль корпораций (выплачиваемый государству); 2) дивиденды (распределяемая часть прибыли), которые корпорация выплачивает акционерам; 3) нераспределенная прибыль корпораций, остающаяся после расчетов фирмы с государством и владельцами акций и служащая одним из внутренних источников финансирования чистых инвестиций, что является для корпорации основой для расширения производства, а для экономики в целом – экономического роста.

In addition to factor incomes, two elements that are not incomes of owners of economic resources are included in GDP calculated by the income flow method.

• The first such element are indirect business taxes. Tax is a compulsory payment by a household or firm of a certain amount of money to the state not in exchange for goods and services. Taxes are divided into direct and indirect. Direct taxes include taxes on income, inheritance, property. The taxpayer and taxpayer is the same economic agent. Indirect taxes are part of the price of a product or service. The peculiarity of indirect taxes is that they are paid by the buyer of the goods or services, and the company that produced them pays the state. Thus, in this case, the taxpayer and taxpayer are different economic agents. Since GDP is a value indicator, then as in the price of any commodity, it includes indirect taxes,which, when calculating GDP, must be added to the sum of factor incomes. Although taxes are state revenues, they are not included in the amount of factor income, since the state, being a macroeconomic agent, does not own economic resources.

• Еще одним элементом, который следует учитывать (добавить) при подсчете ВВП по доходам является амортизация, поскольку она также включается в цену любого товара. So,

ВВП по доходам = заработная плата + арендная плата (включая условно-начисленную арендную плату) + процентные платежи + доходы собственников + прибыль корпораций + косвенные налоги + амортизация

ВВП «ПО ДОБАВЛЕННОЙ СТОИМОСТИ»

Третьим методом расчета ВВП является суммирование добавленных стоимостей по всем отраслям и видам производств в экономике (метод расчета по добавленной стоимости). Например, американская экономика делится на 7 крупных секторов, такие как промышленность, сельское хозяйство, строительство, сфера услуг и т.п.. По каждому из секторов подсчитывается добавленная стоимость и затем суммируется.

It is obvious that the value of GDP calculated by different methods should be the same (the difference can only be at the level of statistical errors). Theoretically, this conclusion follows from the fact that the sum of the values ​​added by each firm (at each stage of production) is equal to the value of the final product. On the other hand, the added value is the difference between the company's revenue and the cost of buying products from other companies, therefore, it is equal to the net income of the company. All this is clearly seen in the diagram corresponding to diagram 1 (definition of value added)

The bread was sold to the buyer for $ 25 (the cost of the final product is $ 25), the agents' incomes were: a farmer $ 5 + a miller $ 3 ($ 8 - $ 5) + a baker $ 9 ($ 17 - $ 8) + a baker $ 8 ($ 25 - $ 17) = $ 25, the added value is : $ 5 at the farmer + $ 3 at the miller + $ 9 at the baker + $ 8 at the baker = $ 25. Thus, all methods of counting gave the same result - $ 25.