How GDP is calculated?

What is not included in GDP. The purpose of this article is to show that although GDP as a measuring devise is quite good. It still has many flaws and therefore these flaws must be taken into consideration when discussing GDP. GDP is calculated by combining value added by all businesses, including manufacturing, mining and services. The total of all of the economic activity in one country, even if the assets are owned abroad. For example the value of the goods less the costs. GDP is usually outputted in an index form. There are many things which are not included in GDP. 1 Gifts, I am sure most of you will have sent money abroad at some time.

2 Transfer payments, and this includes pensions.

3 Domestic activities and unpaid activities, there are billions of voluntary hours worked in almost every country around the world

3 Second hand transactions and barter transactions.

4 Intermediate Transactions, lets track a piece of wood. Its chopped down , then sold to someone who chops it into planks, its then sold to someone else to make a table, the table is then sold to a retailer who then sells it to you, in this case the figure used for GDP is the end price v start price.

5 Leisure, for example if your job becomes easier because of an improvement and therefore you get more leisure time.

6 Environmental costs, although these are measured elsewhere.

7 Changes in quality, lets be honest, you can buy a much better electronic product today for the same amount of (inflation adjusted) money compared with 20 years ago.

8 Non profit making and inefficient activities.

9 Resource depletion, some countries this is very important. Much of the data used in GDP is collected by sending out surveys to different companies. They will send out surveys to a select bunch of retailers and manufacturers to ask for details of their output or sales on a monthly basis. Then comes the estimate of the whole. The governments can obviously use this to their advantage by selecting the companies that they know are steady companies and not choose the smaller companies who are more likely to be erratic. Therefore most smaller companies will never get asked to perform a survey for the government as this may upset the figures. Unrecorded transactions are perhaps the biggest blight on the reliability of GDP. It is currently estimated that in Italy unrecorded transactions amount to one third of GDP, USA 10-20%, UK 8-10% and Japan 3%. Although this can be not be proved as by their very nature are a secret. Italy and the USA do adjust their GDP to account for this but this is obviously a guess.