Comparison's border

The level of GDP in different countries can be compared by converting their value in national currency, either on the basis of

* Current exchange rate: GDP calculated by the exchange rate prevailing on the international money markets
* Purchasing power parity of the exchange rate: GDP calculated by purchasing power parity (PPP) of each currency in relation to a certain standard (usually the United States dollar).

The ranking of countries may differ dramatically between the two approaches.

* The current exchange rate method converts the value of the world's goods and services using the exchange rate. This may provide better indications of a country's international purchasing power and relative economic. For example, if 10% of GDP is spent on buying foreign hi-tech weapons, the number of weapons purchased is entirely governed by the current exchange rates, because the weapons are exchanged product purchased on the international market ( there is no real "local" Price separate from the international price for the high-tech goods).
* The method of purchasing power parity is the relative effectiveness internal purchasing power of the average of producers or consumers within an economy. This may be a better indicator of living standards in less developed countries, since it compensates for the weakness of local currencies in world markets. (For example, India is ranked 13th, but by GDP per 4th PPP). The PPP conversion method of GDP, is the most relevant for non-traded goods and services.

There is a clear change in the purchasing power parity method of decreasing the gap in GDP between the high and low incomes (GDP) countries, compared to the method of the current exchange rate. This is called Penn effect.

GDP and the health of the economy

GDP and living standards

The GDP per capita is often used as an indicator of living standards in an economy. While this approach has its advantages, many criticisms of GDP focus on its use as the sole indicator of living standards.

The main advantages of using the GDP per capita as an indicator of living standards is that it is often measured, broad and steady; frequently in most countries that provide information on GDP on a quarterly basis (which allows a user identify trends faster), largely to the extent that some measure of GDP is available for almost every country in the world (gross allow for comparisons between the standard of living in different countries), and always in that the technical definitions used in GDP is relatively uniform across countries, and so there can be convinced that the same thing is measured in each country.

The main drawback of the use of GDP as an indicator of living standards is that it is not, strictly speaking, a measure of standard of living. The GDP is supposed to be a measure of particular types of economic activity in a country. Nothing in the definition of GDP suggests that it is necessarily a measure of living standards. For example, in an extreme example, a country which exported 100 percent of its production and imported nothing would have a high GDP, but a very low standard of living.

The argument in favor of using GDP is not that it is a good indicator of living standards, but rather that (all things being equal) the standard of living tends to increase when GDP per capita increases . That makes the GDP of a proxy for living standards, rather than a direct measure of it. The GDP per capita can also be seen as an indicator of labour productivity. As workers' productivity increases, employers must compete for them by paying higher wages. Conversely, if the productivity is low, then wages must be low or businesses will not be able to make a profit.

There are a number of controversies over the use of the GDP.

The sum of the WCC, GOS and GEM is called total factor income, and measures of the value of GDP price (core) difference between the base price and the final price (the ones used in the calculation costs) is the total of taxes and subsidies that the government receipts and payments on the production. So, by adding taxes less subsidies on production and imports converts GDP at factor cost in relation to GDP (I).

The formula:

GDP = C + I + P + W + SA

Where is R = rent, I = Interest, P = profits
SA = statistical adjustments (corporate income taxes, dividends, the undistributed profits

of companies)
W = Wages

Measurement’s of International standards

International standard’s

The international standard for measuring GDP is contained in the book System of National Accounts (1993), which has been prepared by representatives of the International Monetary Fund, European Union, Organization for Economic Cooperation and Development, United Nations and the Bank World. The publication is normally designated as SNA93, to distinguish it from the previous edition published in 1968 (known as SNA68).

SNA93 provides a set of rules and procedures for the measurement of national accounts. The standards are designed to be flexible, to take account of differences in the statistical needs and conditions.

National Measurement

In each country's GDP is normally measured by a national government statistical agency, as private sector organizations do not normally have access to necessary information (in particular information on expenditure and production by governments).

GDP can be measured expenditure of all goods and services. GDP can also measure all income earned.

Interest rate’s

Net interest expense is a transfer payment in all sectors except the financial sector. Interest expense net in the financial sector is seen as the production and value added and is added to the GDP.

Critics and limits

GDP is widely used by economists to assess the health of an economy, because its variations are relatively quickly identified. However, its value as an indicator for the standard of living is considered limited. An alternative to this end is the United Nations' Human Development Index in which GDP is a factor contributing to the calculation. Critics of the way the GDP is used include:

* A key issue in the estimate of GDP growth over time is that the purchasing power of money in different proportion varies for different products, so that when GDP figure is deflated over Meanwhile, GDP growth can vary greatly depending on the basket of goods used and the relative proportions used to deflate GDP figures. For example, in the last 80 years, per capita GDP of the United States if it is measured by the purchasing power of potatoes, has not progressed significantly. But if it is measured by the purchasing power of eggs, it has increased several times.