2. Concepts of GDP
The concept of GDP was developed by an American economist named
Simon Kuznets in 1934 and is thereafter recognised as the gold
standard for determining the measure of a country’s economic growth
since the Bretton Wood Conference held in 1944.
The total monetary or market value of all the finished goods and
services produced within a country’s borders in a specific time period.
6. Limitations of GDP
• Non-market transactions are not included in GDP.
• It is unable to determine if a country's growth is sustainable.
• It ignores the influence on human health and the environment that
may develop as a result of the output's creation or use as
externalities.
7. GROSS NATIONAL PRODUCT (GNP)
Gross national product (GNP) refers to the total value of all the goods
and services produced by the residents and businesses of a country,
irrespective of the location of production.
GNP does not take into consideration the incomes earned by the
foreign nationals in the country or any products produced by a foreign
company in the manufacturing units in the country.
8. To calculate the GNP for a nation, the following factors are
considered:
• Consumption expenditure
• Investment
• Government expenditure
• Net exports (Total exports minus total imports)
• Net income (Income earned by residents in foreign countries minus
income earned by foreigners in the country)
10. International Trade Advantages
1. Greater Variety of Goods Available for Consumption:
2. Greater Variety of Goods Available for Consumption:
3. Promotes Efficiency in Production:
4. Promotes Efficiency in Production:
5. Promotes Efficiency in Production:
6. Promotes Efficiency in Production:
7. Utilization of Surplus Produce:
11. Balance of Payment
• The Balance of Payments or BOP is a statement or record of
all monetary and economic transactions made between a country and
the rest of the world within a defined period (every quarter or year).
12. Components of Balance of Payment
• Current Account
The current account monitors the flow of funds from goods and
services trade (import and export) between countries.
• Capital Account
The capital account monitors the flow of international capital
transactions. These transactions include the purchase or disposal of
non-financial assets (for example, land) and non-produced assets.
• Financial Account
The financial account monitors the flow of funds pertaining to
investments in businesses, real estate, and stocks.
13. Importance of Balance of Payment
• It examines the transaction of all the exports and imports of goods and services for a given period.
• It helps the government to analyse the potential of a particular industry export growth and formulate policy to support that
growth.
• It gives the government a broad perspective on a different range of import and export tariffs. The government then takes
measures to increase and decrease the tax to discourage import and encourage export, respectively, and be self-sufficient.
• If the economy urges support in the mode of import, the government plans according to the BOP, and divert the cash flow and
technology to the unfavorable sector of the economy, and seek future growth.
• The balance of payment also indicates the government to detect the state of the economy, and plan expansion. Monetary and
fiscal policy are established on the basis of balance of payment status of the country.
14. foreign exchange rate and its determinants
• A (foreign) exchange rate is the rate at which one currency is
exchanged for another.
