For the understanding of this concept, the following should be noted:
First, GDP is measured in terms of the final product, i.e., the value of the final sale of the final product during the period. Generally based on the actual use of the product, the product can be divided into intermediate products and final products. The so-called final products are the goods and services produced during a certain period of time that can be directly consumed or used by people. This part of the product has reached the final stage of production, can no longer be used as raw materials or semi-finished products into the production process of other products and services, such as consumer goods, capital goods. Intermediate products are goods and services for reprocessing or resale for use in the production of other products, such as raw materials, fuels, etc. GDP must be calculated on the basis of the current final product, and intermediate products can not be counted, or it will result in double counting.
Second, GDP is a concept of market value. The market value of various final products is the value of the exchange reached in the market, are measured in terms of money, reflected through market exchange. The market value of a product is obtained by multiplying the unit price of the final product by its output.
Third, GDP generally refers only to the value resulting from market activities. Those unproductive activities as well as underground and black market transactions are not counted in the GDP, such as domestic labor, subsistence production, and illegal transactions in gambling and drugs.
Fourthly, GDP is the value of the final product produced during the period of calculation, and is thus a flow rather than a stock. Concept to be revised Through the above analysis, we find that although GDP has many flaws, it does indicate the increase of social wealth, and no alternative better concept can be found at present. For the defects of the concept of GDP, we are not completely at a loss, we can make some amendments on the basis of the current concept of GDP, so that the concept of GDP is more perfect. Let's call this concept the effective accumulation of GDP, which adds two elements, one is effective and the other is accumulation, and it is calculated by subtracting the ineffective GDP and the disappearing GDP from the total GDP of the year, which is a better reflection of a place's affluence and speed of development than the pure GDP concept.
What do you mean by invalid GDP and what do you mean by disappearing GDP?
Nowadays, all over the world are engaged in industrial parks, provinces, counties, and even townships, and the enterprises attracted to the parks are all running around, and many of them are not put into operation after the completion of the plants are left unused, and some of the enterprises have circled a piece of land and then overgrown weeds, and the investment in these plants and fences, although they also make local GDP, but the people in the surrounding areas are not able to make use of the resources. GDP, but the people in the neighborhood are very sad, that is a great waste. The following year, they have the courage to or spend savings or debt to engage in post-disaster reconstruction, construction, transportation and other industries are booming, the year's GDP is 130% of previous years, but the people feel that the quality of life than the original poorer than a large section. The reason is very simple, the flood destroyed the fruits of years of labor, and the fruits of labor is the accumulation of GDP in previous years, which disappeared instantly because of the flood.
If the GDP increases while the GDP disappears; or if the GDP is constantly increasing, but the increase is some ineffective GDP, then even a high GDP development rate does not prove that the wealth of the society is increasing and the economy is developing, because only the GDP that is preserved and needed by the people is the real wealth. The disappearance of GDP or ineffective GDP in a place only proves that we have done too much useless work in the past or our current decision-making is problematic.
Regrettably, examples of this continue to abound in our lives. Almost all of China's cities are in the big construction, big roads, big plazas, big parks in an endless stream, some schools spend tens of millions of dollars to build a gate, some cities in a few unpopulated suburban avenues overnight lights, these far beyond the actual need for face-saving projects, is it not ineffective GDP? The process of demolition and relocation is not the disappearance of the past GDP?
If we use the concept of effective GDP accumulation, we will be able to make a more accurate judgment of the degree of economic development of a place's wealth ownership, and the greater the value of the total effective GDP accumulation of a place, the richer the place is; the more the effective GDP accumulation of the year, the faster the economic development of the place is! Therefore, it is very necessary and urgent to activate this concept, and I hope that the government and the academia can adopt it.
Through the above analysis, we found that almost everyone knows the concept of economics, in fact, contains a series of very profound economic reasoning, non-in-depth study of the thorough understanding, and not easy to understand the mystery, which is the reason we like economics, but also precisely the reason that economics is abused by the majority of people misunderstood. [edit paragraph] Related Analysis Accounting Methods I. Accounting for GDP by Expenditure Method
Expenditure method of accounting for GDP, it is from the use of the product, the expenditure of the final product purchased in a year and the total of the expenditure of the final product produced during the year and calculated the market value of the final product. This method is also known as the final product method and the product flow method.
If Q1, Q2?......Qn are used to represent the production of various final products, and P1, P2......Pn represent the price of various final products, the formula for accounting for GDP using the expenditure method is:
Q1P1+ Q2P2+......QnPn=GDP
In real life, the final use of products and services, mainly residential consumption, business investment, government purchases and exports. Therefore, to account for GDP by the expenditure method is to account for the sum of the expenditures of a country or region in a certain period of time in terms of residents' consumption, business investment, government purchases and net exports.
1. Consumption (denoted by the letter C) includes expenditures on consumer durables such as refrigerators, color TVs, washing machines, and automobiles, non-durable consumer goods such as clothing and food, and expenditures on labor such as medical care, travel, and haircuts. Expenditures on building homes are not considered consumption.
2. Business investment (denoted by the letter I) refers to expenditures on adding or renewing capital assets, including plant, machinery and equipment, dwellings and inventories. Investment includes two main categories: investment in fixed assets and investment in inventories. Investment in fixed 2. assets refers to investment in new plant, purchase of new equipment, and construction of new dwellings. Why is residential construction an investment and not a consumption? Because dwellings, like other fixed assets, are used for a long time and slowly consumed. Inventory investment is an increase or decrease in the inventory (or what becomes inventory) held by a business. If the national business inventory at the beginning of the year is $200 billion and at the end of the year is $220 billion, then inventory investment is $20 billion. Inventory investment may be positive or negative because the value of inventory at the end of the year may be greater or less than inventory at the beginning of the year. Business inventory is considered an investment because it generates income. From the point of view of national economic statistics, products that are produced but not sold can only be treated as investment in the inventory of the enterprise, so that GDP statistics from the production point of view and GDP statistics from the point of view of expenditure are consistent.
Investment included in GDP is gross investment, which is the sum of replacement investment and net investment, and replacement investment is also known as depreciation.
The division between investment and consumption is not absolute; the exact classification depends on what is specified in the actual statistics.
3. Government purchases (denoted by the letter G) refers to expenditures by all levels of government for the purchase of goods and services, which include government expenditures for the purchase of arms, services of the army and the police, office supplies and office facilities for government offices, the organization of public **** works such as roads, and the opening of schools. Salaries paid by the government to government employees are also government purchases. Government purchases are substantial expenditures that show a two-way movement of goods, services and money, which directly creates social demand and becomes a component of the gross domestic product (GDP). Government purchases are only a part of government spending, and other parts of government spending such as government transfers and interest on the public debt are not included in GDP.Government transfers are expenditures made by the government not in return for goods and services produced in the current year, including government expenditures on social welfare, social insurance, unemployment relief, poverty assistance, old age security, health care, and subsidies to agriculture. Government transfer payment is the government through its functions to transfer and redistribute income among different members of society, transferring the income of one part of the population to another part of the population, in essence, a kind of wealth redistribution. When there are government transfer payments occur, that is, when the government pays these expenditures, it does not receive any goods and services accordingly; government transfer payments are a kind of monetary expenditures, and the total income of the whole society does not change. Therefore, government transfer payments are not included in the GDP.
4. Net exports (represented by the letters X-M, where X means exports and M means imports) are the difference between imports and exports. Imports should be subtracted from the country's total purchases because they indicate a flow of income from abroad and, at the same time, are not expenditures for the purchase of domestic products; exports should be added to the country's total purchases because they indicate an inflow of income from foreign countries, which are expenditures for the purchase of domestic products, and, therefore, net exports should be counted as part of total expenditures. Net exports may be positive or negative.
Add the above four items together and you have the formula for calculating GDP using the expenditure method:
GDP = C + I + G + (X-M)
In our statistical practice, the expenditure method calculates the division of GDP into final consumption, gross capital formation, and total net exports of goods and services, which reflects the use of GDP produced in the period and its composition.
Final consumption is divided into residential consumption and government consumption. Residents' consumption, in addition to the consumption of goods and services purchased directly in monetary terms, also includes consumption expenditure on goods and services acquired in other ways, the so-called virtual consumption expenditure. Residents' virtual consumption expenditures include the following types: goods and services provided by units to workers in the form of in-kind compensation and in-kind transfers; financial media services provided by financial institutions; and insurance services provided by insurance companies.
With the GDP calculated by the expenditure method, we can calculate the consumption rate and the investment rate. The so-called consumption rate is the ratio of final consumption to GDP, and the so-called investment rate is the ratio of gross capital formation to GDP. According to the relevant statistics, in recent years, China's consumption rate has shown a relatively obvious downward trend, and in 2005, China's consumption rate was 52.1% and investment rate was 43.4%. Compared with the world level, China's consumption rate is obviously on the low side. Therefore, the current and future period, an important element of macroeconomic control is to adjust the ratio of investment and consumption, expanding consumer demand is the focus of expanding domestic demand.
Two, with the income method of accounting for GDP
Income method of accounting for GDP, is from the perspective of income, the factors of production in the production of a variety of income added to the calculation of GDP, that is, the wages received by the labor, landowners get the rent, the interest received by the capital and entrepreneurs to get the profit to add to the calculation of GDP. this method is also known as the elemental payment method, factor cost method.
In a simple economy without government, the value added by firms, the gross domestic product they create, would be equal to factor income plus depreciation, but when the government intervenes, it tends to levy indirect taxes, and GDP at that point should also include indirect taxes and corporate transfer payments. Indirect taxes are taxes levied on the sale of products, and they include excise taxes and turnover taxes. Such taxes are nominally levied on businesses, but they can be built into the cost of production and ultimately passed on to the consumer, so they should also be considered a cost. Similarly, there are corporate transfers (i.e., corporate social charitable contributions to non-profit organizations and consumer bad debt), it is not a factor of production to create income, but to be transferred to the consumer through the price of the product, so it should also be regarded as a cost.
Capital depreciation should also be included in GDP because it is not factor income but is included in total investment.
Also, the income of unincorporated business owners should be included in GDP. Income of non-corporate entrepreneurs is the income of doctors, lawyers, small shopkeepers, farmers, etc. They use their own funds, self-employment, their wages, interest, rent is difficult to be divided into their own business as the company's accounts should be wages, interest on their own funds, rent of their own house, etc., and their wages, interest, profits, rent is often mixed together as non-company entrepreneurs income.
In this way, the formula calculated by the income method is:
GDP = Wages + Interest + Profit + Rent + Indirect Taxes and Corporate Transfers + Depreciation
It can also be viewed as GDP = Income from Factors of Production + Income from Unproduced Factors
Theoretically, the GDP calculated by the income method is quantitatively equal to the GDP calculated by the expenditure method. equivalent.
Third, the production method of accounting for GDP
The production method of accounting for GDP refers to the calculation of gross domestic product according to the output value of each sector that provides material goods and services. The production method is also called the sectoral method. This method of calculation reflects the source of GDP.
When calculating using this method, each production sector deducts the output value of intermediate goods used and only the value added is calculated. Sectors such as commerce and services are also calculated using the value added method. Sectors such as health, education, administration, and household services, which cannot calculate their value added, calculate the value of their services on the basis of wage income.
Accounting for GDP by the production method, it can be divided into the following sectors: agriculture, forestry, and fishing; mining; construction; manufacturing; transportation; postal, telecommunication, and public utilities; electricity, gas, and water; wholesale and retail commerce; finance, insurance, and real estate; services; and government services and government enterprises. Summing the GDP produced by the above sectors and adding it to the net factor income from abroad, and taking into account the statistical error term, you get the GDP calculated using the production method.
Theoretically, GDP calculated by the expenditure method, the income method and the production method are quantitatively equal, but there is often an error in the actual accounting, and thus a statistical error term has to be added to make adjustments to achieve consistency. In actual statistics, the expenditure method of the System of National Economic Accounts (SNA) is generally used as the basic method, i.e., the GDP calculated by the expenditure method is used as the standard.
In China's statistical practice, the income method of calculating GDP is divided into four items:
GDP = compensation of laborers + net production tax + depreciation of fixed assets + operating surplus
The first item is compensation of laborers. It refers to all the remuneration received by laborers for engaging in production activities. Including the various forms of wages, bonuses and allowances received by the workers, both in monetary form and in kind; also includes the workers enjoy the public health care and medicine and health costs, transportation subsidies and social insurance premiums paid by the unit.
The second item is net production, which refers to the balance of production tax minus production subsidies. Production tax refers to various taxes, surcharges and fees imposed by the government on production units for producing, selling and engaging in business activities, as well as for the use of certain factors of production (e.g., fixed assets, land and labor) for engaging in production activities. Production subsidies, in contrast to production taxes, are unilateral revenue transfers from the government to production units and are therefore considered negative production taxes, including policy loss subsidies, price subsidies in the food system, and export tax rebates for foreign trade enterprises.
The third item is depreciation of fixed assets, which refers to the depreciation of fixed assets extracted in accordance with the approved depreciation rate of fixed assets in order to make up for the depletion of fixed assets in a certain period. It reflects the transfer value of fixed assets in the current period of production.
The fourth item is the operating surplus, which refers to the balance of the value added created by the resident unit after deducting labor remuneration, net production tax and depreciation of fixed assets. It corresponds to the operating profit of the enterprise plus the production subsidy.
Four, two systems of national income accounting
The above introduced is the Western System of National Income Accounting (SNA for short). This system is based on Western economic theory, which considers the creation of material products and the provision of services to labor activities are value-creating production activities, and takes the gross domestic product (GDP) as the core indicator for accounting national economic activities. The Western national income accounting system is a method of accounting for the national economy adopted by most countries at present, and is a more reasonable and scientific accounting system. First of all, in today's world economy, where the trend of globalization, integration, marketization and informatization is strengthening, the information, knowledge, technology and labour sectors are becoming increasingly important in economic life, and the value created by the tertiary sector is taking up a larger and larger proportion of modern economic life, while the status of material production in the overall economic life has relatively declined. Therefore, it is necessary that non-material production labor should be counted in the national income accounting system and the market value of all paid labor should be included in GDP. Secondly, double counting can be avoided when accounting for national income according to the SNA, and the distinction between nominal and real GDP, etc. is also reasonable. Of course, this system of using GDP to measure the level of total output of the national economy, the degree of economic development, and the standard of living, etc. is also flawed. For example, non-market-traded activities (e.g., household activities, subsistence production) are not reflected, it does not account for the enjoyment and security of people's leisure, it does not reflect the level of environmental pollution in a country, there is inevitably some double counting in it, and so on. Before the end of the Cold War in the 1990s, there was another system of national economic accounting, the system of balance sheets of material products (or MPS for short) for countries with centrally planned economies, which was used in the former USSR, Eastern Europe, and China. The system was based on Marx's theory of reproduction and used gross social product and national income as the basic indicators reflecting the total results of national economic activity. This accounting system, compatible with the highly centralized planning and management system, once played an important role, but with the reform and development of the global market economy system, its shortcomings have become increasingly prominent. For example, it fails to reflect the development of non-material production sectors, such as information and labor services, and is not conducive to reflecting the comprehensive national strength and rational adjustment of the industrial structure; it fails to systematically reflect the movement of social funds, and is not conducive to the country's macro-management and regulation; and it fails to reflect the overall picture of the national economic cycle and the convergence of the various segments of the cycle, and is not conducive to the country's mastery of the overall balance of the entire economic operation. Therefore, countries with economies in transition, such as Eastern Europe and Russia, as well as China, have gradually adopted the Western national economic accounting system. Since 1985, China has formally adopted the GDP indicator as the main indicator for assessing the development of the national economy and formulating the strategic objectives of economic development. At present, China has calculated and published GDP figures, but has not yet calculated and published figures for indicators such as net domestic production, national income, personal income and personal disposable income. Determination of GDP The calculation of GDP figures published annually by the National Statistical Office (NSO) involves the following processes: a preliminary estimation process, a preliminary verification process and a final verification process. The preliminary estimation process generally takes place at the end of each year and the beginning of the following year. The annual GDP data it obtains is only a preliminary figure, which has to be verified when fuller information is available. The preliminary verification process is generally conducted in the second quarter of the following year. The GDP data obtained from the preliminary verification are more accurate, but many important information required for GDP accounting is still missing, so the corresponding data need to be further verified. The final verification process generally takes place in the fourth quarter of the following year. At this point, all the statistical, accounting and administrative information needed and available for GDP accounting is basically available. Compared with the previous step, it utilizes more comprehensive and detailed information, so this GDP data appears to be more accurate.
In addition, GDP data also need to go through a historical data adjustment process, that is, when new sources of information, new classifications, more accurate accounting methods or more reasonable accounting principles are found or produced, historical data adjustments have to be made to make each year's GDP comparable, which is an international practice. For example, the United States has made 11 historical data adjustments between 1929 and 1999.
In short, the GDP published in each time period has its own meaning and specific value at a particular stage, and one cannot suspect that there is a problem with the statistics just because the data published at different times are different. Of course, there are some shortcomings in our GDP calculation system, for example, the statistical accounting system native to the former Soviet Union and Eastern European countries, which has long been used in our country, has lagged behind the times in many places from a practical point of view.
Note:
1, a certain period of time emphasizes the "new" increase in the final product and the provision of services during the year, not counted in previous years. For example, second-hand cars, second-hand houses, etc. are not counted in this year's GDP.
2, intermediate products can be considered a raw material products, is used in the production of final products, that is to say, it is produced in the current year, but also in the year to continue to process the production; if it is placed on the price of goods sold directly to the consumer to buy and directly with, that is a different story, is a special case, counted in the total value of the otherwise not be counted.
3, this is a flow of concepts, not the concept of stock, not this year's published figures from the founding of the country to the present total, which is wrong, it refers only to the period of the new production of things.
4, the market value means that the currency as a unit of statistics to the formation of the total amount of money, because there are too many types of commodities, tons, a, pieces, units, and so on units can not be summed up, so with the year's monetary unit to statistics and sum. The so-called currency unit of the year refers to the price of these goods in the year. Analysis of Indicators A large increase in a country's GDP reflects the country's booming economy, increased national income, and consequent increase in consumption power. In this case, the country's central bank will likely raise interest rates and tighten the money supply. Good economic performance and rising interest rates increase the attractiveness of the country's currency. On the flip side, if a country's GDP growth is negative, it shows that the country's economy is in recession and its spending power is reduced. At this point, the country's central bank will likely cut interest rates to stimulate renewed economic growth, and a decline in interest rates coupled with poor economic performance will make the country's currency less attractive. Thus, in general, high economic growth rates drive up the exchange rate of the country's currency, while low economic growth rates cause the exchange rate of the country's currency to fall. For example, 1995 - 1999, the average annual growth rate of U.S. GDP was 4.1%, while the 11 countries in the euro zone, in addition to Ireland (9.0%) higher, France, Germany, Italy and other major countries, the GDP growth rate of only 2.2%, 1.5% and 1.2%, much lower than the U.S. level. This has prompted the euro since its launch on January 1, 1999, the exchange rate against the U.S. dollar all the way down, in less than two years has depreciated 30%. But in reality, the impact of differences in economic growth rates on exchange rate movements is multifaceted:
One, a country with a high rate of economic growth means higher incomes and a higher level of domestic demand, which will increase the country's imports, leading to a current account deficit, which, in turn, will cause the exchange rate of the national currency to fall.
Two, if the country's economy is export-oriented, economic growth is to produce more exports, the growth of exports will make up for the increase in imports, slowing the downward pressure on the exchange rate of the national currency.
Third, a country's economic growth rate is high, meaning that labor productivity increases very quickly, the cost of reducing, thus improving the competitive position of domestic products and help to increase exports, inhibit imports; and high economic growth rate of the country's currency in the foreign exchange market is favored, so the country's currency exchange rate will have a tendency to rise.
In the U.S., the Department of Commerce is responsible for analyzing the GDP, which is estimated and counted on a quarterly basis. Each time the preliminary estimates are released, there are two revisions (the first revision & the final revision), which are published in the third week of each month. GDP is usually used to compare with the same period last year, if there is an increase, it means that the economy is faster, which is conducive to the appreciation of the currency; if there is a decrease, it means that the economy is slowing down, and there is pressure to depreciate the value of the currency. In the case of the United States, a GDP growth of 3% is considered ideal and indicates a healthy economy, above which inflationary pressures are present, while a growth of less than 1.5% is indicative of a slowing economy and signs of a recession. The Principle of Data Growth Since the concept of GDP is derived from the principle that exchange generates wealth, we must meet the basic conditions of this principle when pursuing GDP. The basic conditions of this principle are, first, that the exchange must be voluntary, second, that the exchange must not impede third parties, and third, that the exchange must actually take place between two clear property rights holders. Assuming that these three conditions are not met, then I am afraid that the accuracy of the resulting GDP values will have to be greatly reduced, or the GDP data will be flawed. For example, the GDP of forced transactions, the GDP of impediments, the GDP created by exports, the GDP generated by investment, the GDP from consumption, etc. all affect the total effective accumulation of GDP.GDP and Exchange Rates In 1970, Japan's GDP was $206.8 billion, in 1980 it was $1,027.9 billion, and by 1990 it was $3,022.2 billion; in 2000 it was 4766.1 billion dollars; and in 2005 it was 4663.8 billion dollars. At first glance, one can't help but find it strange that during the 30 years from 1970 to 2000, Japan's GDP actually doubled 23-fold, with an average annual growth rate of 11%; and from 2001 to 2005, even though Japan hitched a ride on China's economic express, with an annual economic growth rate of 2%, Japan's GDP actually declined by $100 billion in absolute terms in dollar terms.
What's going on here? It turns out that this is all the exchange rate trouble. 1995, the yen against the dollar once reached a maximum of 78:1. Later, with the bursting of the Japanese economic bubble, the yen against the dollar gradually fell back to 115-118:1, began to stabilize. The strange phenomenon at the beginning of the article then appeared.
The World Bank puts the yuan's parity rate against the dollar at 3.4:1
So there is still some room for the yuan to appreciate in the future. GDP and Bank Interest Rates A country's GDP grows significantly, reflecting the country's booming economy, rising national income and increasing consumption power. In this case, the country's central bank will likely raise interest rates, tightening the money supply, the country's economic performance and interest rates will increase the attractiveness of the country's currency. On the flip side, if a country experiences negative GDP growth, it shows that the country's economy is in recession and its spending power is reduced. The country's central bank will likely cut interest rates to stimulate renewed economic growth, and a decline in interest rates coupled with poor economic performance will make the country's currency less attractive. Therefore, in general, high economic growth rates will push up the exchange rate of the country's currency, while low economic growth rates will cause the exchange rate of the country's currency to fall.
The publication of GDP in Western countries is usually divided into monthly and quarterly releases, with the quarterly GDP figures being the most important. In the U.S., GDP is analyzed by the Department of Commerce, and is routinely estimated and counted on a quarterly basis. Each time after the release of the Preliminary Estimates (The Preliminary Estimates), there will be two revisions (The First Revision & The Final Revision), mainly published in the third week of each month. Gross Domestic Product (GDP) is usually used to compare with the same period last year, if there is an increase, it means that the economy is faster, which is favorable to the appreciation of the currency; if there is a decrease, it means that the economy is slowing down, and there is a pressure to depreciate the value of the currency. In the United States, a GDP growth of 3% is considered ideal and indicates a healthy economy, above which inflationary pressures are present; growth below 1.5% indicates a slowdown and signs of a recession
.