GDP is one of the most important indicators to measure the economic health of a country.
A country with a high GDP value is considered to have good economic growth. On the other hand, if the country’s GDP is low or negative Shows that the country’s economic growth is slowing down.
What is economic growth? And why is this indicator important? Check out the following comments.
Definition of Gross Domestic Product (GDP)
Gross domestic product (GDP) is the total market value of all goods and services produced within a country’s boundaries during a given period. In Indonesian, GDP usually refers to gross domestic product (GDP).
It should be remembered that Indonesia’s GDP is all products and services produced within the boundaries of the Indonesian state. regardless of these citizens or foreigners living and working there. and does not include the production of goods and services for Indonesian nationals or business entities. operating abroad This distinguishes GDP from gross national product (GNP).
GDP is generally calculated in annual (annual) units, however, there are times when these economic indicators are calculated in quarterly units (every 3 months) to assess short-term economic health, yearly GDP development. It is also the main indicator showing economic growth in the country.
as mentioned above Economic growth in a country is relatively good if GDP is positive, and vice versa. GDP is also the benchmark for guaranteeing the proportion of a country’s debt position. This means that the country’s debt should not exceed its annual GDP.
There are three methods used to calculate GDP: the expenditure method, the production method, and the income method.
1. Guidelines for spending
The cost method is the most commonly used formula for calculating gross domestic product (GDP).
The formula for GDP is GDP = C + I + G + (X – M).
c : consumer spending. the amount of money people spend on consumption A high consumption value means that people are confident about the state of the country’s economy. and vice versa As one of the most populous countries in the world. The Indonesian economy is highly dependent on this variable. Reference information from Zeic51.2% of Indonesia’s economic growth is attributed to this variable.
I : Investment The amount of money that domestic and foreign businessmen issue for investment, such as buying machinery. open new factories, etc., in derivatives of this formula This investment variable also includes the amount of public savings.
g : Government spending. The amount of money issued by the government to spin the economic wheel, starting from employee salaries, grants, projects in the above derivative formula. This government spending variable also includes tax revenue after subsidy programs are deducted.
X-M : Net exports or export value (X) minus import value (M). In this variable, economic growth takes into account international trade factors.
2. Manufacturing guidelines
Unlike GDP calculations using the expenditure method above, GDP calculations using the production method are not calculated by calculating the amount of costs spent on purchasing factors. After deducting production costs, in this approach, semi-finished goods are counted as raw materials for production.
3. Income guidelines
In terms of income, GDP is calculated by summing up the total money that citizens receive from all sources of production. It should be remembered that people can receive income in various forms such as salary or wages (wages), interest income (interest), rental income (rent), etc. In this way, the value of income from all these sources will be were combined
In addition to the above sources of income, this method also adjusts for certain factors such as taxes and depreciation. Because both of these factors are directly related to income.
type of gdp
1. Nominal GDP
Nominal GDP is the result of calculating a country’s GDP over a period of time using the price of production during that period. In the Indonesian context, this nominal GDP is commonly referred to as GDP at current prices.
For example, the current GDP value in Indonesia in Q2 2022 is IDR 5,901.2 trillion. The price or cost value used is the price in Q2 2022.
2. Real GDP
Real GDP is the result of calculating a country’s GDP over a period of time using prices of output in the base year. In Indonesian context, real GDP is often referred to as GDP at fixed prices.
For example, the GDP at constant prices for Indonesians in Q2 2022 is IDR 2,976.8 trillion. The price or cost value used is the price in the base year.
3. GDP per capita
GDP per capita, often referred to as income per capita, is a country’s total GDP (both nominal and real GDP) divided by the total population in that country. The goal is to find the “average” income of the country’s population.
GDP per capita is also generally used as a measure of the prosperity of the people of a country. Simply put, the higher the per capita GDP, the better. The people in that country will become wealthier.
Not only that, GDP per capita is also a metric used to determine how much a country has. It deserves to be called a developed, developing or poor country. Many economists consider countries with a per capita income of more than $12,000 to $15,000 to be classified as developed countries. The category of developed countries is not calculated solely on GDP per capita. but also other factors such as the Human Development Index (HDI).
benefit of gdp
1. It’s a common standard for looking at economic growth.
GDP is a common indicator used to calculate economic growth (economic growth). economic growth It is the comparison between the GDP of a country in a given year and the GDP of a country in the previous year. This indicator indirectly shows whether a country’s economy is running smoothly.
For example, during the COVID-19 pandemic in 2020, Indonesia’s GDP fell from $1.12 trillion in 2019 to $1.02 trillion in 2020, while economic growth declined from 5%. in 2019 to -2.1% in 2020. These numbers are generally described as Indonesia’s economy at that time
2. To be a benchmark in economic policy
in addition inflationGDP growth, or economic growth, is also one of the indicators set by the government. The goal is for the government to develop policy programs to achieve this goal.
Setting economic growth targets also shows how a country’s government views the country’s projected development in the future. also called goals Many times the goal has been achieved. But there are times when this isn’t the case.
For example, reference data from KatadataThe government is targeting economic growth to hit 5.3% in 2020. Yes, although in reality economic growth is -2.1 because of the pandemic.
Criticism of GDP
As understood above, GDP is an economic indicator that measures output only within a country’s boundaries. irrespective of the produce carried by foreigners or residents of that country.
This discredits two other economic factors: the state’s income derived from the output of the country’s population living and working abroad (such as TKI), and the value of income or capital gains remitted from the country’s population. foreign investors to their country which would make the value of GDP possible overpriced neither appraised.
2. Measure only the output data recorded.
GDP does not account for economic factors that are carried out informally or underground, such as volunteering, part-time work, freelance activities, or even sales and purchases of prohibited goods that are carried out in the country. black marketThis means that GDP cannot be used as the sole factor in assessing a country’s economic potential.
In addition, the GDP calculation does not include output from business-to-business (B2B) activities, since in the above formula GDP only takes into account the value of finished goods and the company’s recent investment.
3. Calculate yield only regardless of usefulness or not.
The GDP formula only includes nominal value or money issued by the government to fund projects. Regardless of whether the project will be successful in overcoming the economic problems. This means that even failed government projects count towards GDP.
4. GDP focuses only on material benefits, not social welfare.
A high GDP does not mean that people in a country will be prosperous, although in some cases this is coupled with an increase in the GDP of a country. Economic inequality also increased in that country.
It should be remembered that economic growth is not the same as economic development. Economic growth focuses on a country’s productivity (GDP) over a period of time. While the issues raised and addressed in economic development are broader.
Economic development issues such as unemployment, Human Development Index (HDI) or Human Development Index (HDI), poverty level. Therefore, it is not surprising that there are countries with high GDP per capita that are not classified as developed countries because of these other variables.
in analyzing the country’s economic development Economists often use GDP with other macroeconomic variables such as the Human Development Index (HDI), poverty and unemployment rates, and the Gini Index to assess inequality, among others.
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