What is GDP?

[McLovin]

GDP is the gross value (not volume) of production within an economy. Used to be called Gross National Product...

GNP is a different measure (value of production by residents of a country) to GDP (value of production with the geographical bounds of a country).

 

[GumbyLearner]

GNP is a different measure (value of production by residents of a country) to GDP (value of production with the geographical bounds of a country).

I question that McLovin.

It is not just the value of production of residents of a country but more importantly ownership of a company domiciled within the same country where the goods are "actually" produced. That is GNP.

Disclosure: I'm a Product of Australia :

 

[Tysonboss1]

Re: GDP???

Ohhhhh I'm sorry. And here I was thinking I was in the beginners section! My apologies. Perhaps in future you can make me aware that my question may not be the best, and direct me to a good website that I can research myself, as opposed to posting useless comments and trying to make others out to be stupid. Not all of us are as educated as yourself.

Thanks for your help champ

As Henry Ford said - "You should chop your own wood, It will warm you twice"

Heres the thing, the questions you asked are very easy to reserach yourself, Not only thst it would be faster to research it yourself than ask the question here and have an asf type for 20mins giving you a complete answer.

As Explod showed, he simply cut and pasted from wiki, you could have easily searched for it yourself, and as you search for the info you will find many other pieces to complete your puzzel along the way.

 

[Julia]

Re: GDP???

As Henry Ford said - "You should chop your own wood, It will warm you twice"

Heres the thing, the questions you asked are very easy to reserach yourself, Not only thst it would be faster to research it yourself than ask the question here and have an asf type for 20mins giving you a complete answer.

As Explod showed, he simply cut and pasted from wiki, you could have easily searched for it yourself, and as you search for the info you will find many other pieces to complete your puzzel along the way.

Fair enough comment, but maybe consider that some new people will ask questions as a way of establishing themselves in a forum, and maybe to gauge how helpful people are or otherwise.

It seemed a fairly genuine question to me and I'm a bit surprised at some of the criticism.

 

[Tysonboss1]

Re: GDP???

Fair enough comment, but maybe consider that some new people will ask questions as a way of establishing themselves in a forum, and maybe to gauge how helpful people are or otherwise.

It seemed a fairly genuine question to me and I'm a bit surprised at some of the criticism.

Julia, I always try and be helpful. I have spent hours replying to peoples questions and trying to add layers to different discussions and even sending PMS.

However, On the face face of it, to me. the original post that started this thread asked multiple questions that any one with the ability to log on and post a thread should be able to google and spend some time reading about.

Then once they have done some reading start a thread where they can offer opinions, ideas and grey areas where the need clarification. Not simply ask us to collect facts for them.

 

[Julia]

Tyson, I wasn't directing criticism at you or anyone else, and yes, you are indeed usually very helpful.
I was just trying to offer an alternative basis for Young Gun asking the question, i.e. more of a 'getting to know you' thing.
I might be totally wrong and just having a rare moment of feeling indulgent or something.

 

[McLovin]

I question that McLovin.

It is not just the value of production of residents of a country but more importantly ownership of a company domiciled within the same country where the goods are "actually" produced. That is GNP.

Disclosure: I'm a Product of Australia :

Yes, my mistake, it should be the value of goods and services produced by the labour and property of the residents of a country.

 

[McLovin]

Re: GDP???

Fair enough comment, but maybe consider that some new people will ask questions as a way of establishing themselves in a forum, and maybe to gauge how helpful people are or otherwise.

It seemed a fairly genuine question to me and I'm a bit surprised at some of the criticism.

In retrospect, I think you are probably right and I might have jumped the gun a bit. With the follow up posts, it seems more like young-gun kind of had a brain dump in the OP but the clarified in subsequent posts.

 

[GumbyLearner]

Tyson, I wasn't directing criticism at you or anyone else, and yes, you are indeed usually very helpful.
I was just trying to offer an alternative basis for Young Gun asking the question, i.e. more of a 'getting to know you' thing.
I might be totally wrong and just having a rare moment of feeling indulgent or something.

Well done Julia.

 

[young-gun]

Ahh OK, that's much better.

GDP is the value of everything a country produces and the change in that number being "economic growth". As you said there are three different methods (production, income, expenditure) of measuring and they should all arrive at the same number, but because of the estimation involved they usually won't. You don't really need to know how the three arrive at a GDP number.

Essentially the ABS estimates the number by surveying thousands of large businesses, which is why it's prone to revision. They might also use things like BAS reciepts.

There's a bit here about how they do it:
http://www.abs.gov.au/Ausstats/abs@...Notes&prodno=5206.0&issue=Jun 2011&num=&view=

haha ok thanks, glad we are finally getting somewhere! once again apologies to all for the lack of clarity in my question.

So am i correct in thinking that the figure they arrive at for GDP(even after being revised) could still be quite inaccurate? taking into account wrong boxes ticked, wrong buttons pushed, things missed or left out by businesses? or do things like this have minimal impact to the end figure?

finally this is probably a very simple and almost useless example:
first quarter expenditure comes in at 10 bill...second quarter expenditure comes in at 11 bill..growth is 10% on previous quarter? once again i know this isnt a good example but is this the general principal behind gdp calc?

 

[young-gun]

Re: GDP???

Julia, I always try and be helpful. I have spent hours replying to peoples questions and trying to add layers to different discussions and even sending PMS.

However, On the face face of it, to me. the original post that started this thread asked multiple questions that any one with the ability to log on and post a thread should be able to google and spend some time reading about.

Then once they have done some reading start a thread where they can offer opinions, ideas and grey areas where the need clarification. Not simply ask us to collect facts for them.

a few things - isnt wikipedia able to be edited and changed by anyone? which brings into question the validity of the info you get off there? secondly, ive apologised for the original post, i was just firing the first things that came to my mind and clarified further down, thirdly i have read about gdp, i just wanted more in depth answers that i thought users might be able to help with, and finally i hardly think you would have had to go off and "collect facts" to answer my questions given your knowledge on economics? i find it frustrating ive had to spend most of this post defending myself...and in the beginners section?

and julia you're absolutely right...when starting out it is very much a "getting to know people thing" from my point of view anyway

 

[bellenuit]

Also if someone could give me examples of good and bad gdp and maybe some current levels.

Since GDP is a measure of things produced and includes services rendered, bad GDP would include things that don't add to the general well being, particularly the product and services needed to repair damage, either accidental or intentional.

So, for instance, is a kid sprays graffiti on a city wall and the council employs the services of a contractor to clean it up, then that service is part of GDP. However, it is obvious that it is wasted labour as it would not have been necessary if the vandal hadn't sprayed the wall to begin with. Another example might be the Queensland floods. The services and products used to clean up the mess adds to Australia's GDP, but if we didn't have the floods to begin with, we wouldn't have needed to expend those resources. Bad GDP is not just accidents and damage, but would include much of the costs associated with the legal system, bad workmanship needing repair (e.g fixing the pinks batts problem) - really anything that requires expenditure on a product or service that doesn't add to the well being of the nation. Good GDP would be everything else.

 

[Tysonboss1]

Re: GDP???

1, isnt wikipedia able to be edited and changed by anyone? which brings into question the validity of the info you get off there?

2, secondly, ive apologised for the original post, i was just firing the first things that came to my mind and clarified further down,

3, i find it frustrating ive had to spend most of this post defending myself...and in the beginners section?

1, Yes, to an extent. But much less than a post on a thread in a forum.

2, I understand that now, My responce to you was not meant to be mean spirited in anyway.

3,No need to defend yourself any further, clarifying what it was you wanted is enough, We are a forgiving bunch and move on very quickly.

 

[young-gun]

Since GDP is a measure of things produced and includes services rendered, bad GDP would include things that don't add to the general well being, particularly the product and services needed to repair damage, either accidental or intentional.

So, for instance, is a kid sprays graffiti on a city wall and the council employs the services of a contractor to clean it up, then that service is part of GDP. However, it is obvious that it is wasted labour as it would not have been necessary if the vandal hadn't sprayed the wall to begin with. Another example might be the Queensland floods. The services and products used to clean up the mess adds to Australia's GDP, but if we didn't have the floods to begin with, we wouldn't have needed to expend those resources. Bad GDP is not just accidents and damage, but would include much of the costs associated with the legal system, bad workmanship needing repair (e.g fixing the pinks batts problem) - really anything that requires expenditure on a product or service that doesn't add to the well being of the nation. Good GDP would be everything else.

ahh right, so does the reserve bank take things like this into account when adjusting interest rates? or do they just care about whether the figure is too high or too low? surely if there is things falsely or temporarily inflating the economy they would tend to sit on there hands and wait and see? and obviously australias mining sector would have a substantial impact on our growth?

i've always known of inflation and how it is good or bad but was just never aware of how it was determined and how it was linked to gdp so i appreciate the help guys!

 

[McLovin]

So am i correct in thinking that the figure they arrive at for GDP(even after being revised) could still be quite inaccurate? taking into account wrong boxes ticked, wrong buttons pushed, things missed or left out by businesses? or do things like this have minimal impact to the end figure?

They do a pretty good job of getting it *more or less* correct. Considering the time in which they get the figure out and the size of the revisions, they appear to have a pretty good handle on what can go wrong.

finally this is probably a very simple and almost useless example:
first quarter expenditure comes in at 10 bill...second quarter expenditure comes in at 11 bill..growth is 10% on previous quarter? once again i know this isnt a good example but is this the general principal behind gdp calc?

Yeah that's right.

 

[McLovin]

i've always known of inflation and how it is good or bad but was just never aware of how it was determined and how it was linked to gdp so i appreciate the help guys!

Just to clarify, inflation isn't GDP growth.

 

[young-gun]

Just to clarify, inflation isn't GDP growth.

....so im confused, the two arent linked? is inflation purely calculated on supply and demand, and the reserve is fighting against rising prices of general goods and services, as opposed to an increasing gdp?

does this mean that an increase in GNP that you spoke of would have an affect on inflation? and that gdp is just an indication as to whether an economy is growing or contracting, which is still an important indicator on its own?

 

[Tysonboss1]

Inflation is measured by rising prices on a basket of goods and services, So it is seperate to GDP.

You can have increased GDP without having Inflation. Inflation is measured by the prices of a basket of goods over time.

I find it easier to understand inflation by thinking about it as the money supply it's self inflating, More money floating around compared to actual goods and services offered for sale = rising prices, Less money floating around compared to goods and services available = lower prices.

Generally a money supply with either be inflating or deflating, Inflation is generally seen as the lessor of the two evils, So most central banks choose to be leaning towards a steady slow rate of inflation say 3%, rather than slip into deflation.

 

[McLovin]

....so im confused, the two arent linked? is inflation purely calculated on supply and demand, and the reserve is fighting against rising prices of general goods and services, as opposed to an increasing gdp?

Well they are linked but not directly. Remember GDP measures output, inflation measures price changes. Obviously GDP growth higher than inflation is necessary to actually grow in real terms. Ideally what you want are productivity increases that lead to GDP growth without increasing prices, ie if a worker can go from producing 100 widgets in a 40 hour work week to 200 widgets in the same period then they have doubled productivity while being paid the same amount (of course they would likely demand higher wages because of their productivity increase, but we're keeping it simple). On the flipside you can have stagflation which is the opposite, no growth and high inflation, as a lot of Western nations experienced in the 1970s.

does this mean that an increase in GNP that you spoke of would have an affect on inflation? and that gdp is just an indication as to whether an economy is growing or contracting, which is still an important indicator on its own?

It depends on what drives the growth in output. As in the example above if someone reinvents a widget machine so it can now create twice as many widgets/man hour then inflation should remain flat (or even fall if the theoretical economy produced only widgets).

Just remember that one measures growth in output and the other measures change in prices. They are linked, but not in a straight line.

 

[young-gun]

ok sweet, seems as though it is a tad more in depth than i originally thought, thanks for all the help!