Assignment on Eco 102.

1
Name – Atikur Rahman
Id – 17303019
Submited to – Tahsin Binta Anis

QUESTION : To what extent Gross

Domestic Product can describe economic
development?
Answer -
Gross domestic product (GDP) is the total monetary or market value of all the finished goods
and services produced within a country's borders in a specific time period. As a broad measure
of overall domestic production, it functions as a comprehensive scorecard of a given country’s
economic health. Though GDP is typically calculated on an annual basis, it is sometimes
calculated on a quarterly basis as well. In the U.S., for example, the government releases an
annualized GDP estimate for each fiscal quarter and also for the calendar year. The individual
data sets included in this report are given in real terms, so the data is adjusted for price changes
and is, therefore, net of inflation. In the U.S., the Bureau of Economic Analysis (BEA) calculates
the GDP using data ascertained through surveys of retailers, manufacturers, and builders, and
by looking at trade flows.

Key Takeways –

 Gross domestic product tracks the health of a country's economy.

 It represents the value of all goods and services produced over a specific time period
within a country's borders.
 Economists can use GDP to determine whether an economy is growing or experiencing a
recession.
 Investors can use GDP to make investments decisions—a bad economy means lower
earnings and lower stock prices.
Nominal vs. Real GDP
GDP can be expressed in two different ways—nominal GDP and real GDP. Nominal GDP takes
current market prices into account without factoring in inflation or deflation. Nominal GDP
looks at the natural movement of prices and tracks the gradual increase of an economy's value
over time.

Measuring GDP
There are three primary ways of calculating GDP: first, by adding up what everyone earned in a
year (known as the income approach) or by adding up what everyone spent in a year (the
expenditure method). Logically, both measures should arrive at roughly the same total.

The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total
compensation to employees, gross profits for incorporated and non-incorporated firms, and taxes
less any subsidies. The expenditure method is the more common approach and is calculated by
adding total consumption, investment, government spending, and net exports.

GDP = C + G + I + NX

where:

 C = consumption;
 G = government spending;
 I = investment; and
 NX = net exports.
GDP for Economists and Investors
GDP is an important measurement for economists and investors because it is a representation of
economic production and growth. Both economic production and growth have a large impact on
nearly everyone within a given economy. When the economy is healthy, there is usually a lower
level of unemployment, and wages tend to increase as businesses hire more labor to meet the
growing demand of the economy. Economists look at positive GDP growth between different
time periods (usually year-to-year) to make an assessment of how much an economy is
flourishing. Conversely, if there is negative GDP growth, it may be an indicator that an economy
is in a recession, or approaching a recession or an economic downturn.

Investors pay attention to the GDP because a significant percentage change in the GDP–either up
or down–can have a significant impact on the stock market. In general, a bad economy usually
means lower earnings for companies. And this can translate into lower stock prices.

Investors may pay attention to positive and negative GDP growth when they are devising an
investment strategy. However, it's important to note that because GDP is a measurement of the
economy in the previous quarter or year, it is better used to help explain how economic growth
and production have impacted your stocks and your investments in the past. It is not considered a
helpful predictor of how the market will move in the future.

The Bottom Line

In one number figure, a country's GDP is capable of conveying a range of information about that
country's economy. Because of this, it remains a helpful and useful data point for economists and
investors.

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ASSESSMENT OF DATA

(a)Data Needed to Compile the Indicator: The conversion rates used by the UN
Statistics Division (UNSD) are normally the market or blended rates of exchange
obtained from the International Monetary Fund (IMF). In some cases, use is made of
UN operational rates that are established primarily for the settlement of administrative
transactions between host countries and the UN. In very unique circumstances the use
of purchasing power parities (PPP) or price-adjusted rates of exchange (PARE) is
necessary. The World Bank also uses a special exchange rate where the official
exchange rate produces distortion in the dollar levels of GDP. (b)National and
International Data Availability and Sources: The indicator has no serious limitations
in terms of data availability. The principal data elements for a majority of countries
are mostly and regularly available from national and international sources on a
historical basis. Internationally accepted conceptual guidelines, are also available to
assist with the compilation of the indicator. Annual GDP data in current and constant
prices are generally reported by national statistical offices or central banks through the
United Nations National Accounts Questionnaire (UN NAQ) and supplemented by
estimates prepared by the UN as well as other international organizations such as the
World Bank and the IMF. The Organisation for Economic Co-operation and
Development (OECD) compiles quarterly GDP estimates for its Members. Population
data are mainly obtained either through censuses or surveys. These are supplemented
by growth estimates prepared by the UN Population Division. (c)Data References:
Comprehensive national accounts statistics are published by the UN in the series
National Accounts Statistics: Main Aggregates and Detailed Tables. A historical
series of GDP is available from the national accounts database of the UN Statistics
Division. Population data and projections are available in the World Population
Prospects published by the Population Division of the UN Department of Economic
and Social Affairs. Exchange rates are published by the IMF in International Financial
Statistics.