Clarification regarding definition of GDP (Gross Domestic Product)

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vassy
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Clarification regarding definition of GDP (Gross Domestic Product)

Post by vassy » 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?

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

Post by ghariton » 26 May 2017 17:38

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.

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The plural of anecdote is NOT data.

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adrian2
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Re: Clarification regarding definition of GDP (Gross Domestic Product)

Post by adrian2 » 26 May 2017 19:02

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]

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