Clarification regarding definition of GDP (Gross Domestic Product)

Recommended reading, economic debates, predictions and opinions.
Post Reply
vassy
Contributor
Contributor
Posts: 11
Joined: 04 May 2017 02:34

Clarification regarding definition of GDP (Gross Domestic Product)

Post by vassy »

Investopedia gives the definition of GDP as the final value of goods and services produced over a given period of time. It can also be the total amount of goods and services consumed. But for e.g. a jeans is produced and it is sitting on the shelf of the store. If no one buys that jeans then it will be counted as a good produced but it will not be counted in goods consumed. Thus the value in final value of goods produced will be different than amount of goods consumed. Can someone please clarify?
User avatar
ghariton
Veteran Contributor
Veteran Contributor
Posts: 15954
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Clarification regarding definition of GDP (Gross Domestic Product)

Post by ghariton »

vassy wrote: 26 May 2017 15:11 Investopedia gives the definition of GDP as the final value of goods and services produced over a given period of time. It can also be the total amount of goods and services consumed. But for e.g. a jeans is produced and it is sitting on the shelf of the store. If no one buys that jeans then it will be counted as a good produced but it will not be counted in goods consumed. Thus the value in final value of goods produced will be different than amount of goods consumed. Can someone please clarify?
GDP includes other things in addition to goods and services consumed. In particular, it includes what is called inventory investment, i.e. the difference between inventory levels this year and last year. Inventory investment can be intentional (e.g. building up stocks in anticipation of growing sales) or unintentional (your product isn't selling as well as planned). GDP measure makes no difference: inventory is inventory.

More important components are imports and exports (either not produced or not sold domestically) and government (taxation and spending).

While in theory it doesn't matter whether you measure GDP from the production, consumption or income aspect, in practice these do not come to the same result. Hence fudge factors.

Geprge
The juice is worth the squeeze
User avatar
adrian2
Veteran Contributor
Veteran Contributor
Posts: 13333
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: Clarification regarding definition of GDP (Gross Domestic Product)

Post by adrian2 »

vassy wrote: 26 May 2017 15:11 Investopedia gives the definition of GDP as the final value of goods and services produced over a given period of time. It can also be the total amount of goods and services consumed. But for e.g. a jeans is produced and it is sitting on the shelf of the store. If no one buys that jeans then it will be counted as a good produced but it will not be counted in goods consumed. Thus the value in final value of goods produced will be different than amount of goods consumed.
More likely than not, the jeans were produced in China (and in this case, "consumed" in Canada). :P

George has touched on this in his reply.
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
Post Reply