So, it is very essential to have a GDP for a country calculated over a definite time period. In order to further explain the definition, I will take the example of Qatar. The GDP of Qatar is the total value of output of goods and services produced within Qatar over a period of time. The definition of GDP includes all the production done by local residents and resources owned by the residents of Qatar and also by foreigners and foreign resources owned by non-residents of Qatar. GDP can be measure by three methods and each method should give the same answer. It can be calculated by the output method. In this method, the value of total output produced in Qatar is its GDP. It can also be calculated by the income method. Since selling of output results in income for sellers, therefore in this method GDP is calculated by adding up the income of all people working in Qatar. Similarly, the GDP of Qatar can also be calculated by using the expenditure method. Since, income for one person is expenditure for others, in this method the GDP is calculated by adding up all the expenditures spent on Qatar's production.
It is often considered by people that sole GDP figures are enough for telling the economic well-being of a country. For example, the people who say this base their claim on the fact that any changes or increase in the GDP is signal of improvement in economic well-being. ...
studied alone without any supporting data, one cannot predict whether the country is enjoying economic wellness or it is facing low standard of living.
There are a number of reasons why we cannot rely solely on the GDP figures and need comprehensive sets of data to determine the economic wellness of the country.
Suppose that a GDP of country increases by 20%/ Many people will say that the country will now enjoy great economic well being or its residents will be better-off. However, this is not true. In order to determine the net of economic wellness, we need to take into account the population growth rate as well. If population growth rate is 25%, then we can clearly conclude that people will be worse-off by this increase and there will be a net-decline in the standard of living of people living in this country. So, it is not GDP that matter, but it is the real GDP that tells us about the economic wellness of a country. Real GDP takes into account the population and it is the measure which tells us about the economic wellness of a country.
Similarly, what if an increase in GDP is because of the increase in inflation. Inflation increases the price of everything and because of this the value of GDP increases. This type of increase in the value of GDP because of inflation is also not very good as economic wellness and people's standard of living is directly related to the physical quantity of goods being produced and not the quantity. So, we need to taking into account the inflation factor also and adjust the nominal GDP with inflation factor to arrive at the real GDP and only this way we can tell whether or not the country is enjoying economic wellbeing or not. A good way to counter this problem is calculating per capita income. Per Capita income is calculated by diving