MACROECONO

GROSS
DOMESTIC
MICS
PRODUCT

BY PROF VALLIAPPAN RAJU

Lecture 3
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INTRODUCTION

WHAT YOU WILL LEARN

1.What is called as GDP?
2.What are the components of GDP?
3.Formula to calculate GDP.

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GDP of Malaysia is

313.2 billion USD

(2013)

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Malaysia stands in 35th Rank in World on GDP

ranking. Following are 34 countries which is
ahead of Malaysia in terms of GDP,
United States, China, Japan, Germany, United Kingdom, France, Brazil,
Italy, India, Russia, Canada, Australia, South Korea, Spain, Mexico,
Indonesia, Netherlands, Turkey, Saudi Arabia,
Switzerland, Nigeria,
Sweden, Poland, Argentina, Belgium, Taiwan, Norway, Austria, Iran, United
Arab Emirates, Colombia, Thailand, South Africa and Denmark.
(Source: International Monetary Fund, 2015 Report)

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What it Gross Domestic Product?

How is it relevant to judge at Economy
(nation)?
Why is it important?

What is GDP...

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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 MONEY value of all goods and
services produced over a specific time
period; you can think of it as the size of the
economy.

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DEFINITION - GDP
GDP is equal to the sum of the income generated
by production in the country in the periodthat is,
compensation of employees, taxes on production
and imports less subsidies, and gross operating
surplus (or profits).

Which Countries are more Productive in terms of

GDP?
If you are measuring productivity based on Gross
Domestic Product (GDP), the ten most productive
countries in the world are, in order, the United States,
China, Japan, Germany, France, the United Kingdom,
Brazil, Italy, Russia and India. Each of these countries
has a GDP of two trillion U.S. dollars or more (Source: World
Bank Report, 2014)

The countries whose GDPs have the highest rate of growth, also in order,
are Turkmenistan, Chad, Mongolia, the Democratic Republic of Congo and
the Ivory Coast.
A country's GDP is essentially a measure of the health and size of its
economy. It is calculated by estimating the dollar value of all goods
produced within a country during a certain time period, most commonly a
year. Countries with healthy economies tend to produce more goods and
have higher GDPs, and could therefore be said to be the most productive.
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Know about GDP of few

nations:
Malaysia - 313.2 billion USD (2013)
USA - 16.77 trillion USD (2013)

Singapore - 297.9 billion USD (2013)

China - 9.24 trillion USD (2013)
India - 1.877 trillion USD (2013)
UK - 2.678 trillion USD (2013)

Thailand - 387.3 billion USD (2013)

Philippines - 272.1 billion USD (2013)

Tanzania - 33.23 billion USD (2013)

Kenya - 55.24 billion USD (2013)
South Africa - 350.6 billion USD (2013)
UAE (Dubai) - 402.3 billion USD (2013)

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Lets calculate
GDP
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GDP = C + I + G+(X-M)
OR
GDP = consumption + gross investment
+ government spending
+ (exports imports)

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12

GDP = C + I + G+(X-M)
Where :
C : Consumption
I : Investment
G : Government spending
X : Exports
M : Imports

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: consumption

Includes

::

Personal

expenditures mainly consists of:

food
households
medical expenses
rent, etc.

For

example, if a hotel is a private home

then renovation spending would be
measured as Consumption.

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I : investments by business or households in capital.

Example, If you spend money to renovate your hotel so that
occupancy rates increase, that is private investment.
Includes:
Construction of a new mine.
Purchase of machinery or equipment for factory.
Purchase of software.
Expenditure on new houses. Buying goods and services.
NOTE:: Investments on financial products is not included 15
in
Investments.

G : Total government expenditures on final goods

and services.
Includes ::

Investment expenditure by the government.

Purchase of weapons for the military
Salaries of public servants.

Example: if a government agency is converting

the hotel into an office for civil servants the
renovation spending would be measured as part
of public sector spending (G).

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X : Gross Exports.

Includes ::

all goods and services produced for overseas

consumption.

Example, If a domestic producer is paid to make

the chandelier for a foreign hotel, the payment
would be counted in gross export.
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M : gross imports.

Includes ::

any goods or services imported for consumption

Example, If the renovation of hotel involves the

purchase of a chandelier from abroad, that
spending would be counted in gross imports.
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SUMMARY

WHAT WE LEARNT IN THIS SESSION,

Micro-Economics Study of Economy at the level of individual
Economics Study of Markets and how resources are allocated

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ACTIVITY
1. Calculate GDP using the following data:
Consumer spending = $200 million
Investment spending = $55 million
State and local government spending = $120 million
Federal government spending = $80 million
Imports = $50 million
Exports = $45 million
Income taxes = $100 million

2. Write short note: Why is it important to know GDP of a country?

3. Answer on your own: Your opinion about Malaysian Economy. Is it
progressing or balancing or dipping? Justify your answer.

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Answer
In this case, $200 million + 55 million + $120 million + $80
million + $45 million = $500 million. Then imports of $50 million
is subtracted to get GDP = $450 million.

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