Concept of Gross Domestic Product and Gross National Product

GDP measures the total monetary value of goods and services produced within the domestic boundaries of a country e.g. Ghana for an accounting period. It includes all the goods and services produced by foreign owned firms that are located in the country e.g. Ghana for the accounting period.

The first stage, GDP is calculated by summing the values added at intermediate levels of production or the monetary value of all final goods and services in a particular accounting period within a country. Market prices are used to convert real values of goods and services to their monetary values.The addition of the relevant monetary values of goods and services produced during the accounting period gives GDP.

The second stage is to determine GDP at factor cost. Market prices are used to convert real values into monetary values to arrive at GDP. These values are distorted because of indirect taxes and subsidies and do not reflect the factor cost of output. To adjust for these effects, indirect taxes are subtracted and subsidies added to GDP to arrive at GDP at factor cost.

GDP at factor cost = GDP – indirect taxes + subsidies

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