Gross national product


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Gross national product

  1. 1. Gross Domestic Product (GDP)“The total market value of all final goods and services produced within given country in a given periodof time usually one year.”Reasons for low and High GDP of a country: High GDP is due to the people in a country being moreproductive because they are healthier, better educated/trained and have more capital plant andequipment to enhance their productivity and better infrastructure. However only rich countries can providethese things so it is not really the answer. At one time all rich countries were poor but at some point intheir history they got a little ahead of the game and accumulated extra resources and improve conditionswhich then escalated over time. Economist debate over why this happens but they agree that freemarkets and property rights are a necessary but not sufficient. If we knew how to trigger growth therewould not be any poor countries.Why does some countries have high gdp and some low gdp: A country with a high GDP has eitherhigh net exports (exports-imports) wherein it is has a good performance in trade, high FDI(foreign direct investment) from private firms outside the country, high consumption (itscitizens are able to spend and acquire goods), and high government spending either fortechnological advancement, labor development, and infrastructure. As one can clearly seethat the countries in the list below, top 5, are worldwide known for good GDP, just becauseof the above reasons.A country has low GDP, because it’s imports are more than its exports, second reason isthat it has poor performance in trading, and has low FDI from private firms outside thecountry, low consumption because it’s citizens are not able to spend and acquire goods andone of the most fundamental reason is that government doesn’t spend on welfare and fordevelopment, that’s why some countries has low GDP. 1. USA = 15094.00 billion US dollars in 2011 2. China = 7298.10 billion US dollars in 2011 3. Japan = 5867.15 billion US dollars in 2011 4. Russia = 1857.77 billion US dollars in 2011 5. India = 1847.98 billion US dollars in 2011 6. Singapore = 239.70 billion US dollars in 2011 7. Pakistan = 211.09 billion US dollars in 2011 8. Indonesia = 166.54 billion US dollars in 2011 9. Bangladesh = 110.61 billion US dollars in 2011 10. Sri Lanka = 59.17 billion US dollars in 2011
  2. 2. Inflation rate:”The rate of change of prices (as indicated by a price index) calculated on a monthly orannual basis.” Inflation Rate Cause #1: An increase in demand for goods relative to supply. When more people fight over fewer goods, the price increases. It is just as true for an entire country as it is for a lamp on eBay. We have seen an increase inthe inflation rate, in part, because countries like China and India, which had virtually no industrial base a few generations ago, have billions of citizens poised to enter the middle class in the coming years. That means that the fixed, small supply of global copper, silver, gold, and other commodities will be bidded upon by a much larger group of potential buyers, driving up prices. In the past, a handful of industrialized nations, such as the United States, Canada, Australia, Great Britain, Germany, France, Italy, Russia, etc. were the only ones in the game when it came to requiring oil or other commodities. That time has passed. Inflation Rate Cause #2: An decrease in the value of each existing nominal unit of currency. Dont panic - it isnt nearly as complicated as it sounds. Its another way to say a government is printing money. If governments print money and depreciate their own currency, each dollar will buy fewer goods because dollars are less scarce. Think about it. If a school teacher is suddenly earning $150,000 per year, she is going to be able to walk into a Maserati dealer and buy a car. But Maserati production is limited - the company can only churn out a fixed number of high- quality automobiles each year. As more money floods the economy, the relative income of different professions isnt likely to change, so lawyers who made $100,000 before the inflation increase might be making $300,000. That means the teachers wont be able to compete with the lawyers - still - and the price of Maserati’s will double or triple. That is, the numbers on price tags changes but the relative purchasing power of the individual citizens hasnt changed. The teacher wont be able to afford the car but the lawyer will. The people who get hurt are those who have large investments and other fixed incomes such as Social Security. By reading the above two most fundamental reasons, it is clear that why countries like Japan, USA, China etc. has inflation rate under control, while in countries like Pakistan, Bangladesh etc. has high inflation rate. 1. Japan = -0.40 percent in July of 2012 2. USA = 1.40 percent in July of 2012 3. China = 1.80 percent in July of 2012 4. Singapore = 4.00 percent in July of 2012
  3. 3. 5. Indonesia = 4.58 percent in August of 2012 6. Russia = 5.90 percent in August of 2012 7. Sri Lanka = 6.00 percent in July of 2012 8. India = 6.87 percent in July of 2012 9. Bangladesh = 8.03 percent in July of 2012 10. Pakistan = 9.60 percent in July of 2012 Per capita income:“Per Capita Income means the average income of whole population in a country in ayear.” CAUSES -OR- REASONS OF LOW PER CAPITA INCOME: Causes of low per capita income may be divided into following three categories:A. Economic Causes B. Social Causes C. Political Causes A. ECONOMIC CAUSES Following are the economic causes of low per capita income:1. Vicious Circle of Poverty Vicious circle of poverty is the largest reason of low per capita income. Developingcountries including Pakistan are trapped into VCP. A poor country is poor forever due to theVCP. 21.0 % population is very poor population in Pakistan. 2. Unemployment Unemployment is the major cause of low per capita income. Unemployment means nosource of income and result is low per capita income. Rate of unemployment is 5.5 %, 16 % isunderemployed and 20% is disguised unemployed in Pakistan. 3. Lack of Foreign Investment Due to backwardness, political instabilities and improper availability of infrastructure theattraction for foreign investment is not suitable. Foreign investment (Jul-Mar) is $ 1.8 billion inPakistan. Foreign investment is reduced by 45%. Lack of foreign investment means lessemployment opportunities and low per capita income. 4. Low National Income
  4. 4. Low per capita income in Pakistan is also the result of low level of national income. Lowlevel of national income means low level of saving and low level of investment. All these factorscontribute toward poverty. 5. Use of Backward Technology Techniques of productions used by developing countries are backward. Due to out-datedmethods of production, productivity level is low. Low level of productivity means narrowness ofmarket and reduction in exports and increase in imports. 6. Increase in Utility Charges Utility charges like water, gas, electricity, telephone bills etc. are increasing day by day inPakistan. More utility charges lead to reduction in the saving of population and its result is lowper capita income. At present growth rate of electricity and gas sector is 0.4 %. 7. Poverty Poverty in Pakistan is very common, 21.0 % population is treated as poor population.Poverty is also a cause of low per capita income. Low per capita income means low level ofsaving and low level of investment. Its result is poverty. 8. Backward Agricultural Sector People have adopted just subsistence farming styles in agriculture sector. They are notfarming according to the commercial patterns. Sometimes, due to natural calamities and use ofbackward techniques of production, there is reduction in production and it decreases the incomeof poor farmers. Its share in GDP is only 21.5 %. 9. Absence of Credit Facilities Poor population is needed credit facilities to take an active part in economic activities toremove low per capita income. But in Pakistan, availability of credit is not desirable. Poor peoplehas no access to credit it is only for rich landlords. Conditions for credit issuing are so tights andcredit is not given in time. 10. Improper Income Distribution Imbalanced distribution of resources is an additional cause of low per capita income inPakistan. This situation leads to increase the gap between rich and poor. Due to undesirabledistribution of income and wealth, poor population is unable to take part in economic activities toremove poverty. 20 % rich population has complete control over the 50 % national resources inPakistan. 11. Low level of Productivity Due to use of backward technologies and inefficiencies of labour& entrepreneur,productivity level in Pakistan is very low as compare to developed countries. Value of annualproductivity of Pakistani labour is much lower than the value of labour of rich nations. Annualvalue of productivity of labour is only $ 100 against $ 2500 in advanced countries in Pakistan.
  5. 5. 12. Low level of Saving Low level of saving is mainly due to low income. It leads to less investment and less return. Due to less return people remains poor forever. Domestic savings are 9.9 % of GDP. Low level of saving means low per capita income in Pakistan. 13. Inflation High rate of inflation is an extra reason for low per capita income. Due to inflation much amount of money is not enough to purchase much quantity of goods and services. Inflation decreases the savings and investments of poor people. Rate of inflation (CPI) is 13.3 % in Pakistan. 14. Imposition of Taxes Government has to impose taxes to raise its revenue. Imposition of taxes reduces the disposable income of people. Lack of disposable income means low saving and low investment, poverty and low per capita income. Amount of FBR tax collected is Rs.1380 billions. 15. Non-Productive Expenditures Government has to make a lot of unproductive expenditures on social heads and to make strong defence. These high expenditures are also a reason of low per capita income. 16. Low Rate of Capital Formation Rate of capital formation in Pakistan is very low. Low rate of capital formation means low opportunities of employment, low level of productivity and deficit in balance of payment that leads to low per capita income. Rate of capital formation is just 5 % in Pakistan. B. SOCIAL CAUSES Following are the social causes of low per capita income: 17. Population Pressure Rapidly rising population is also a cause of poverty. Existing population is already not provided basic necessities of life. Therefore, increase in population will lead to decrease the per capita income. Now population of Pakistan is 169.94 million with growth rate of 2.05 %.18. Dishonesty & Corruption Low per capita income is also due to dishonesty and corruption in management. Officers receive a huge amount of illegal money for the legal and illegal job. These unnecessary payments reduce the savings of poor and result is low per capita income.19. Illiteracy Lack of education and training is also a cause of low per capita income. It reduces the abilities to work. Sometimes a worker due to illiteracy remains unemployed or underemployed. Similarly, lack of skill in entrepreneur also reduces his profit and its result is low per capita income. Literacy rate in Pakistan is 57 %.
  6. 6. 20. Backward Infrastructure Non-availability or availability of backward infrastructure is also an additional reason of low per capita income and poverty. Low level of education, backward state of technology, poor health, inefficiency of labour and poor system of transportation & communication are cause low per capita income and poverty. Backward infrastructure causes low attraction for foreign investment.21. Low Living Standard Pressure of foreign counties in our economic activities, backward standard of productivities and improper basic facilities to population reduces the living standard of population. Low living standard is a symbol of low per capita income. Expenditure on health sector is only 0.55 % of GDP. C. POLITICAL CAUSES These are some political causes of low per capita income:22. Law and Order Law and order conditions are at their poor stage. A huge portion of saving of population is wasted in costly and lengthy legal process that leads to low per capita income. Chief Justices Iftikhar Muhammad Chohdery himself has to wait for a very long time.23. Poor Governance Instable government and instability in the policies of government are another cause of low per capita income and poverty. Every government remains failed to establish such policy that leads to reduce the poverty.24. Landlordism Ignorant but big landlords control our whole economy. They have no sense of social welfare. In government they take those actions that are in their personal interest. Their actions badly affect the encouragement of per capita income25. Nepotism Nepotism means the murder of talent and abilities. It refers to the employment opportunities according to relation not according to worth. If population is poor but is talented it remains poor due to nepotism. 16 % employed labour force is performing their services below their capabilities. Conclusion: Per capita income of Pakistan is very low as compare to the per capita incomes of rich nations. Use of modern technologies and control on population is necessary to improve the per capita income.
  7. 7. 1. USA = 38491.54US dollars in December 2011 2. Japan = 35510 US dollars in December 2011 3. Singapore = 33529.83 US dollars in December of 2011 4. Indonesia = 4667.96 US dollars in December of 2011 5. Russia = 3052.15 US dollars in December of 2011 6. Sri Lanka = 2835.41 US dollars in December 2011 7. China = 2634.71 US dollars in December of 2011 8. Bangladesh = 1788.30 US dollars in December of 2011 9. India = 1488.52 US dollars in December 2011 10. Pakistan = 672.10 US dollars in December of 2011 Gross National Product (GNP)“An economic statistic that includes GDP, plus any income earned by residentsfrom overseas investments, minus income earned within the domestic economy byoverseas residents.”GNP is a measure of a countrys economic performance, or what its citizens produced (i.e.goods and services) and whether they produced these items within its borders.There is an old joke among economists that states: A recession is when your neighbor loses his job. Adepression is when you lose your job.The difference between the two terms is not very well understood for one simple reason: There is nota universally agreed upon definition. If you ask 100 different economists to define the terms recessionand depression, you would get at least 100 different answers. I will try to summarize both terms andexplain the differences between them in a way that almost all economists could agree with.Recession: The Newspaper DefinitionThe standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) fortwo or more consecutive quarters.This definition is unpopular with most economists for two main reasons. First, this definition does nottake into consideration changes in other variables. For example this definition ignores any changes inthe unemployment rate or consumer confidence. Second, by using quarterly data this definition makesit difficult to pinpoint when a recession begins or ends. This means that a recession that lasts tenmonths or less may go undetected.
  8. 8. Recession: The BCDC DefinitionThe Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides abetter way to find out if there is a recession is taking place. This committee determines the amount ofbusiness activity in the economy by looking at things like employment, industrial production, realincome and wholesale-retail sales. They define a recession as the time when business activity hasreached its peak and starts to fall until the time when business activity bottoms out. When thebusiness activity starts to rise again it is called an expansionary period. By this definition, the averagerecession lasts about a year.DepressionBefore the Great Depression of the 1930s any downturn in economic activity was referred to as adepression. The term recession was developed in this period to differentiate periods like the 1930sfrom smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition ofa depression as a recession that lasts longer and has a larger decline in business activity.The DifferenceSo how can we tell the difference between a recession and a depression? A good rule of thumb fordetermining the difference between a recession and a depression is to look at the changes in GNP. Adepression is any economic downturn where real GDP declines by more than 10 percent. A recession isan economic downturn that is less severe.By this yardstick, the last depression in the United States was from May 1937 to June 1938, wherereal GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s canbe seen as two separate events: an incredibly severe depression lasting from August 1929 to March1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severedepression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, wherereal GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions inrecent memory using this definition.Now you should be able to determine the difference between a recession and a depression withoutresorting to the poor humor of the dismal scientists. 1. USA = 15,097,083 billion dollars 2. China = 6,628,086 billion dollars 3. Japan = 5,774,376 billion dollars 4. Germany = 3,549,303 billion dollars 5. France = 2,775,664 billion dollars 6. UK = 2,366,544 billion dollars 7. Italy = 2,146,998 billion dollars
  9. 9. 8. Brazil = 2,107,628 billion dollars 9. India = 1,746,481 billion dollars 10. Canada = 1,570,866billion dollarsReferences/Sources: