People brag about how much the GDP has increased and other stuff. GDP is the measure of all economic activity in an economy. So let’s say that I transfer Rs.10000 to my friend and he transfers me Rs. 10000 back, nothing of value is created, we are back to where we started from all that happened was exchange of the same fund but it managed to increase the country’s GDP by 20000. So the focus of every economy shouldn’t be of just increasing the GDP but rather creating something that produces value. What is your opinion in this? Let’s discuss.
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I think you will find [this discussion](https://www.reddit.com/r/AskEconomics/comments/bb3q25/please_convince_me_why_gdp_is_at_all_a_useful/) in /r/AskEconomics useful.
>So let’s say that I transfer Rs.10000 to my friend and he transfers me Rs. 10000 back
You realize GDP is measured by exchanging money for goods and services, and not just straight cash transactions.
Transferring money doesn’t increase the country’s GDP. Its only calculated if you bought goods and services worth $10,000
That would be flawed methodology. I don’t know the econometrics that goes behind these models. However, I can say your transfers do not count as production. However, if you loaned your friend 10k at 10% interest and your friend does some economic activity in order to make enough to pay off the interest, this transaction would contribute a net 10% growth to gdp.
In general, gdp growth correlates with value creation. If value isn’t being created, economic activity does not happen.
The value in the GDP metric is what it can say about society as a whole. If value is being created and year over year, the amount of economic activity is increasing, looking at other indexes like the GINI coefficient, we can make assumptions about how well people’s lives are improving. At the heart of it, you need money to pay for things. If the economy is increasing in size, generally, the country’s ability to pay for things increases.
Transaction of good doesn’t account for GDP. However, if you buy a good from a friend for 10,000 and then resell it for 10000, that’s a gdp is 20,000. In a micro level those things matter but in a macro level, these have minimal impact.
One of the problem with gdp of developing countries is often good are created and transacted without involvement of money. For example, many people grow their own veggies, so it doesn’t impact the gdp as these is no money involved. However, if you buy the same thing from the store, that adds to gdp.
GDP is the total value of Goods and Services that is produced in a country.
Take this for an example.
You are a producer of biscuits. You buy Rs. 100 of wheat, Rs 50 of sugar and Rs. 5 of packaging and transport. After everything, you sell it for Rs. 200.
What’s GDP here? Is it 200+5+50+100 = 355? No.
GDP is 200 as that is the gross value of the good produced.
Since no good or service was produced in your transaction, there was 0 contribution to the GDP.
A simpler way of understanding GDP is total amount of money people are spending since more consumer spending = production of more goods and services.
I don’t think the example you gave works.
Tell me you skipped macroeconomics without telling me you skipped macroeconomics