What The Heck Is GDP?
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GDP, GNP – what does it all mean? Jonathan explains what economists mean when they bring up these common economic indicators. Learn more at HowStuffWorks.com: http://money.howstuffworks.com/gross-national-happiness.htm Share on Facebook: Share on Twitter: Subscribe: http://goo.gl/ZYI7Gt Visit our site: http://www.brainstuffshow.com OK, let’s say you’ve just gotten a job offer to work in the majestic country of Bumpsylvania. Awesome, right? You’ve always wanted to live amongst the scenic Bumpsylvanian swamplands and hear the local ghost toads sing their famous mating screech. But before you pony up the $549.95 for Rosetta Stone: Bumpsylvanian Edition, you want to do a little research on the economic health of this country. So you ask your friend the economics professor: How is the economy of Bumpsylvania doing these days? One number that will almost definitely figure into her reply is the country’s GDP. This stands for Gross Domestic Product. GDP is a common measure that’s used to roughly represent the size of a country’s economy. The way you calculate GDP is both simple as a general principle, and complicated in the details. The simple version is that GDP is the value of all the goods and services produced within a country in a given period of time, such as a financial quarter or a year. So if we look at Bumpsylvania, we can calculate its yearly GDP by adding up the dollar-value of all the stuff it creates: All the pork sandwiches, shoe shines, fashion magazines, bullets, massages, motorcycles, jiu-jitsu classes, ghost toad swamp tours, and, of course, traditional, Bumpsylvanian-style wooden hats. Every item, product or service brought to market by workers or other economic resources located inside the country in that year is part of the GDP. Coming up with this figure is not as easy as it sounds. GDP is actually a highly complex and abstract statistical instrument that takes some real work to calculate. Just one example of the many complications: Let’s say somebody cuts down some swamp trees and turns those trees into lumber, and then sells that lumber to a haberdasher who turns it into a traditional, Bumpsylvanian-style wooden hat. Do you count the sales of both the lumber _and_ the hat? Well, no, because GDP is a measure of the final value of goods and services. So if you counted the sale of the wood to the hat-maker and the sale of the hat, you’d be counting the same value twice. The value of the wood gets wrapped into the final value of that gorgeous, gorgeous headgear. GDP is probably the most important measure of the size and performance of an economy, but it’s not the only one. There’s also GNP, which is related, but slightly different. GNP stands for gross national product. The difference is that GNP is the value of all the products and services produced by a country’s residents, even if production takes place outside of the country. So if a Bumpsylvanian business has a factory making wooden hats in another country, the output of that factory would be included in Bumpsylvania’s GNP, but not its GDP. While GDP is a widely used indicator of economic strength, many critics point out that it’s not necessarily the best indicator of the “real” health of a nation. For example, a country with a large, growing GDP might look strong on paper, but what if that number is masking vast income inequality – a productive economy based on huge amounts of low-wage labor? Of course by comparing GDP with other pieces of data, you can do more with the figure. A simple example would be comparing GDP with population to come up with Per Capita GDP (which means economic value per person). So for example, according to the World Bank, in 2013, China’s GDP was a massive $9.2 trillion. Compare that to Luxembourg’s relatively small GDP of $60 billion. Yet in the same year, China’s GDP Per Capita was only about $6,800, while Luxembourg’s was more than 16 times that, at about $110,000. So while China’s economy is certainly much larger, it looks like each individual citizen, on average, is better off in Luxembourg. Financially speaking, that is. SOURCES: http://www.britannica.com/EBchecked/topic/246663/gross-national-product-GNP http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm http://www.britannica.com/EBchecked/topic/246647/gross-domestic-product-GDP http://money.howstuffworks.com/gross-national-happiness.htm/printable http://www.nytimes.com/2013/10/05/world/asia/index-of-happiness-bhutans-new-leader-prefers-more-concrete-goals.html?_r=0 https://books.google.com/books?id=V5IpAgAAQBAJ&printsec=frontcover&dq=how+to+calculate+gnp&hl=en&sa=X&ei=QlVyVZH1CJKFyQTo-4D4CQ&ved=0CDYQ6AEwAg#v=onepage&q=how%20to%20calculate%20gnp&f=false http://data.worldbank.org/indicator/NY.GDP.MKTP.CD http://data.worldbank.org/indicator/NY.GDP.PCAP.CD http://www.factcheck.org/2008/02/gdp-vs-gnp/
Comments
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what is exact difference between PPP GDP n Nominal GDP
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Gross National Happiness is what we consider in our country. of course GDP and GNP counts too to measure.
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great...nicely explained
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Thank you so much!! That really helped better my understanding :)
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hi
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Nice explanation! Moving to bumpsivannia now!
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Quite helpful ❤
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when you say per capita, do you mean per household, city or person?
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Great video dudes , thanks !
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omg thank you so much!
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does GDP account for product that dont pay taxes ?
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very nicely explained ... made it so clear .. thank you!!
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very well done. Fantastic
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I assume the prices are calculated for each country separately - i.e. a 100g of cottage cheese can cost 50 cents in country X and 20 cents in country Y, correct?
In this case, it seems to me that GDP per capita will be a rather big deception in the following case - with which I'm personally familiar: I come from Israel, where - just for the example - a tub of cottage cheese costs about 1.25$; I live now in Germany, where a tub of cottage cheese costs about 0.6$. On average, salaries in Germany are a bit higher (not a mistake) than in Israel. Nevertheless, even if Germans and Israelis like cottage cheese just the same, for a number of reason it may be that they'll buy a similar amount of cottage cheese tubs a week. You may now say - "so then the German will have money to buy some other stuff which the Israeli wouldn't be able to afford", but it seems to me that this doesn't account for at least two things: perhaps the less important one is that - if I understand it correctly - loans and minus in the bank are not taken into account in the GDP per capita; and more importantly, savings are not taken into an account: if both the Israeli and the German earn 5$ a month each, and both buy 4 cottage tubs, only the German will have some money left in his pocket for a "rainy day".
Nevertheless, I can still see the Israeli government mentioning in such a case how Israel's GDP is as good as the German one, saying allegedly that the financial situation of Israeli citizens is as good as that of Germans.
Am I wrong here about some of the stuff? I'd love to get some explanations! :) -
very informative video sir . needs to be appreciated..
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What is the difference between GDP and GDP PPP.??
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What does GDP (Gross Domestic Product) have to do with FTA (Free Trade Agreements)? What is the relation between the two?
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Unrelated question - how are you creating the animation? I'd like to create videos with charts that stand out and this one is a great example
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Q: GDP= Consumption( Of goods and services) + Govt. Purchases + Investment ( In business).
What you said, going by that I understood its all about the value of Goods & Services 'PRODUCED' aggregated and Shown. But 'Govt. Purchases' and 'Investment' isn't a service or good. So why is it Included in GDP? -
How would the world bank measure this? Do they have access to all sales within a country? Or is it only exported out the country? I assume there must be a lot of estimation?
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