Gross domestic product (GDP)
Definition
The gross domestic product (GDP) is a measure of the economic performance of a national economy over a given period. It indicates the value of the goods and services produced in the economic territory (value added) unless they are used as intermediate consumption for the production of other goods and sercices. The GDP is calculated at current prices and price-adjusted (deflation with previous year's prices, changing every year, and chain linking). What is shown at previous year's price base is the "real" development of economic activity over time, free from any price influence. The rate of change of the price-adjusted GDP serves as a measure of economic growth in a national economy. Hence, the GDP is the most important aggregate of national accounts and it is one of the indicators of the dissemination standard of the International Monetary Fund (IMF).
Calculation
In Germany, the GDP is calculated applying the production and expenditure approaches. Calculating the GDP by means of the distribution approach is not possible in Germany because basic data on property and entrepreneurial income are lacking. In national accounts, the property and entrepreneurial income is obtained as a residual value.
Production approach:
The production approach refers to a component of domestic production calculations which represents economic performance from the production side. The production, expenditure and distribution approaches from the core of the continuous domestic product calculation. The most important aggregate of the production approach is the gross value added, which is defined as the difference between the value of output and the value of intermediate consumption. The gross domestic product (GDP) at market prices is obtained by taking as a basis the gross value added of all sectors of economic activity, adding taxes on products minus subsidies on products. Gross value added, output and intermediate consumption are determined and published both at current prices and price-adjusted.
Expenditure approach:
The expenditure approach shows how the goods from domestic production and imports are used, after subtraction of intermediate consumption. The aggregates shown by the expenditure approach are final consumption expenditure of households, of non-profit institutions serving households, and of government, gross fixed capital formation (machinery and equipment, construction, other fixed assets), changes in inventories, acquisitions less disposals of valuables, as well as the balance of exports and imports of goods and services. All aggregates of the expenditure approach are determined and published both at current prices and price-adjusted.
Distribution approach:
The economic performance may be determined in the economic system not only from the production and expenditure sides but also by means of the distribution approach, based on the incomes generated in the production process. However, it has so far not been possible in Germany to perform a separate calculation on the distribution side because the data available on entrepreneurial income are not sufficient for this purpose. An aggregate frequently used for the distribution approach is the net national income (factor costs), which consists of compensation of employees and entrepreneurial and property income. Subtracting employers' social contributions from the compensation of employees results in gross wages and salaries. Entrepreneurial and property income is calculated by deducting compensation of employees from net national income (factor costs). At present, the aggregates shown by the distribution approach are calculated and published at current prices only.
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