How to calculate GDP using GDP Deflator? To know this process at first we need to know about two types of GDP; those are 1. Nominal GDP: Nominal GDP shows the production of goods and services at the current year. In nominal GDP price or quantity may be increased. This can be best explained by an example below: Year Price of good A Quantity of good A Price of good B Quantity of good B 2001 1 100 2 50 2002 2 150 3 100 2003 3 200 4 150 Here, Nominal GDP of 2001 = (1 X 100) + (2 X 50) = 200 2002 = (2 X 150) + (3 X 100) = 600 2003 = (3 X 200) + (4 X 150) = 1200 Limitations: It is easy to see that GDP computed this way is not a good picture of economic well being. That is, this measure does not accurately reflect how well the economy can satisfy
The Methods of Calculating GDP Gross Domestic Product-GDP is the monetary value of all the finished goods and services produced within a country’s boarder in a specific time period. There are three alternative methods of computing GDP. This includes: 1. Value Added Method 2. Factor Income Method 3. Expenditure Method These methods are described below: 1. Value Added Method: This is also known as inventory method. In this method the sum total of the gross value of the final goods and services in different sectors of economy such as industry, service, agriculture etc is acquired for the current year by determining the total production the was made during the specific time period. The value obtained in the gross domestic product. GDP is calculated using value added method or output method by summing the value of sales of goods and adjusting or subtracting for the purchase of intermediate goods t produce the goods sold. Thus, GDP (usin