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GS-III : Economic Issues GDP/GNP

04 March, 2021
4 Min Read

Gross Domestic Product vs Gross Value Added

Gross Domestic Product

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.
GDP includes all private and public consumption, government outlays, investments, private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted)
Thus the components of GDP are Consumption (C) plus Investment (I) plus Government Spending (G) plus BOP i.e. Exports minus Imports (X-M)
GDP is calculated using this standard formula: C + I + G + (X-M).
GDP is commonly used as an indicator of the economic health of a country, as well as to determine a country’s standard of living
Since the mode of measuring GDP is uniform from country to country, GDP can be used to compare the productivity of various countries

Gross Value Added

The term that is used to denote the net contribution made by a firm is called its value-added
The raw materials that a firm buys from another firm which are completely used up in the process of production are called ‘intermediate goods’.
Therefore the value added of a firm is, the value of production of the firm – the value of intermediate goods used by the firm.
Gross value added (GVA) is defined as the value of output less the value of intermediate consumption.
When the value of taxes on products (less subsidies on products) is added, the sum of value added for all resident units gives the value of gross domestic product (GDP).
Thus, Gross value added (GVA) = GDP + subsidies on products – taxes on products

GDP vs. GVA

Gross value added (GVA) is the value addition done to a product resulting in the production of final product whereas Gross Domestic Product (GDP) is the total value of products produced in the country.
While GDP gives a picture of the whole economy, GVA gives pictures at enterprises, government and households levels.
In other words, GDP is the GVA of all enterprises, governments and households.

Source: AspireIAS Notes

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