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Policy Document

COM(2009) 433 final - GDP and beyond measuring progress in a changing world

Policy Document
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

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Gross Domestic Product (GDP) - Outlook from the Organisation for Economic Co-operation and Development (OECD) GDP can be calculated in three ways, providing different perspectives on the balance of economic activity. Essentially these three approaches consist of adding up the total value of incomes, spending or production in a country or region during a period of time. More formally they can be defined as follows (OECD, 2015b): the ‘income approach’ calculates GDP based on the sum of primary incomes distributed by resident producer unit; the ‘expenditure approach’ calculates GDP based on the sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers' prices, less the value of imports of goods and services; the ‘output approach’ calculates GDP as the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs). Applying these approaches using current price data will deliver an estimate of nominal GDP. Nominal GDP data are often adjusted to facilitate meaningful comparisons of economic output between different time periods and between different countries. For example, nominal GDP is adjusted to remove the effects of price inflation in order to provide a more realistic measure of changes in the volume of economic production. Constant price estimates of GDP are obtained by calculating the value of production in different periods using the price levels from a single base period. Similarly, nominal GDP growth is converted into real GDP growth using the ‘GDP deflator’ (OECD, 2015a). Price differences between countries can likewise make it hard to compare the volume of national production using nominal price data at market exchange rates. Purchasing power parity (PPP) estimates of GDP compensate for differences in prices between countries to provide a better comparison of the volume of goods and services produced in different countries or regions. They thereby support better comparisons of living standards (OECD, 2015c). The data shown in this indicator are expressed in 2005 US dollars in PPP terms. References OECD, 2015a: 'OECD Glossary of Statistical Terms - Gross domestic product (GDP) – constant prices Definition' ( http://stats.oecd.org/glossary/detail.asp?ID=1164 ) accessed 19 Jan 2015. OECD, 2015b: 'OECD Glossary of Statistical Terms - Gross domestic product (GDP) Definition' ( http://stats.oecd.org/glossary/detail.asp?ID=1163 ) accessed 19 Jan 2015. OECD, 2015c: 'OECD Glossary of Statistical Terms - Purchasing power parities (PPPs) – OECD Definition' ( http://stats.oecd.org/glossary/detail.asp?ID=2205 ) accessed 19 Jan 2015.

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For references, please go to https://www.eea.europa.eu/policy-documents/com-2009-433-final-gdp or scan the QR code.

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