Gross Domestic Product.

[R_P_A_S]

GDP or is it PPP? Im not sure.. anyways Gross Domestic Product. what does it really reflect?
Does it reflect how rich the country in resources and production? Or does it just show how rich the rich are off the country and the workers. I don't get it.

for example for Mexico it says that is like 1.3 trillion dollars a year? that sounds like a lot of money. and i read that they are 10th in the world. OK? so why are people so poor? I know that I'm misunderstanding something. I hope someone can shed me some light.

thanks

[ComradeRed]

GDP is the value of the total commodities produced and services provided by a country in a year in the current money; this is a bad measurement because there is no real way to take into account inflation (real GDP takes into account inflation, nominal GDP does not take it into account).

PPP is perchasing power parity (http://en.wikipedia.org/wiki/perchasing+power+parity) which has something to do with long run market equilibrium.

[BobKKKindle$]

PPP is an adjustement to take into account differences in the cost of living - that is, what the money is actually able to purchase - across different countries.

There are many limitations to GDP as an indicator of Macroeconomic performance. GDP / Capita (GDP divided by population) has similar problems and limitations.

Firstly, it is merely a measure of the net value and does not account for the actual nature of the goods and services that have been produced; a country can specialise in the production of commodities that are of little value to ordinary citizens, for example, defence or heavy capital goods, and this can suggest a high GDP and GDP / Capita based on standard measurements.

Secondly, as you suggested, GDP does not record the distribution of income and commodities, and so a country may have a high GDP per Capita even if wealth is concentrated in the hands of a minority and the majority do not have access to basic goods and services. Whether this inequality is a bad thing is of course not objective, but rather a value statement based on the individual's perceptions and ideology.

Thirdly, GDP does not account for the long term sustainability of a country's economy. A short term increase in GDP can be gained through the rapid exploitation of natural resources, but this may yield a decline in the quality of living and even GDP in the long term.

In addition, GDP or GDP / Capita does not take into account other determinants in the standard of living. For example, leisure time - although European countries tend to have lower GDP / Capita than the United States, European workers, on average, work 300 hours less than Workers in America. The oppurtunity cost of greater GDP is the decrease in leisure time.

Note also that GDP does not take into account current and capital account transfers (The momevemt of exports, importans, profits, and dividends) which is covered by GNP - Gross National Production. A Further measurement is used - NNP - Net national product - to take into account the depreciaiton of fixed capital.