Gross domestic product

Gross Domestic Product (GDP) is a measure of economic activity within a country. It is the total value of all goods and services produced over a specific time period within a country's borders.

Definition

GDP is the monetary value of all finished goods and services made within a country during a specific period. It provides an economic snapshot of a country, used to estimate the size of an economy and growth rate. GDP can be calculated in three ways: through production, income, or expenditure.

Calculation

The GDP calculation can be approached in three different ways: The production approach, the income approach, or the expenditure approach.

Production Approach

The production approach, also known as the output or gross output approach, calculates GDP by adding up the outputs of every class of enterprise to arrive at the total.

Income Approach

The income approach, also known as the earnings approach, calculates GDP by adding up all producers' incomes.

Expenditure Approach

The expenditure approach, also known as the spending approach, calculates GDP by adding up all of the spending on final goods and services in an economy.

Uses

GDP is used by economists to compare the economic performance of different countries, and to make international comparisons. GDP is also used to guide investment decisions and economic policy.

Limitations

While GDP is a useful measure of economic activity, it has several limitations. It does not account for the distribution of income among the residents of a country, nor does it account for the informal, non-monetary economy.

See Also

• Economy
• Economic growth
• Economic indicator
• National income
• Gross national product

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