GROSS DOMESTIC PRODUCT -

What is GDP?
GDP refers to the total value of the finally marketable goods and services produced within the boundary of
a country in one financial year. Hence, while calculating GDP it does not matter, by whom goods and services are being produced, it only matters where goods and services are being produced.

 So even if something is produced by a foreign company within India, its value will be added to the Indian GDP. The GDP of a country shapes its economy. The more the GDP, the larger the size of the economy. An increase in the GDP is termed Economic Growth.

How many types of GDP
The GDP of a country is calculated in three different ways-
1) GDP at Market Price/GDP at Current Price/Nominal GDP.
2) GDP at Base Price/GDP at Constant Price/Real GDP.
3) GDP at factor cost.

NOMINAL GDP -:
While calculating Nominal GDP the current price of the goods and services are taken into consideration. It
means that it includes the impact of inflation, deflation, subsidies, and even indirect taxes. Hence even if the production does not increase or decrease, due to the impact of inflation, deflation, subsidies, and indirect taxes the nominal GDP will fluctuate.

REAL GDP -:
While calculating Real GDP the price remains constant. It means that it does not include the impact of inflation, deflation, or indirect taxes. For this purpose, a base year is maintained and the price in the base year is taken into consideration year after year. Hence, real GDP fluctuates only when production fluctuates. The current base year is 2011-2012. The Ministry of Statistics and Programme Implementation (MoSPI) has recently announced that the government is planning to change the base year for the calculation of Real GDP to 2020-21.

GDP AT FACTOR COST 
It is calculated from the Nominal GDP of a country. The prices of goods and services are impacted by indirect taxes and subsidies. The indirect taxes pull the GDP upwards whereas the subsidies pull the GDP  downwards. Therefore in order to calculate GDP at factor cost the impact of the indirect taxes and the
subsidies have to be eliminated. For this purpose, the indirect taxes are subtracted from the nominal GDP
whereas the subsidies are added to the nominal GDP.

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