Gross Domestic Product

Gross Domestic Product (often abbreviated as 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 the finished goods and services produced within a country's borders in a specific time period. It includes all of private and public consumption, government outlays, investments, additions to private inventories, paid-in construction costs, and the foreign balance of trade (exports are added, imports are subtracted).

Calculation

There are three ways to calculate GDP:

1. Production Approach: This approach calculates GDP by adding up the outputs of every class of enterprise to arrive at the total. This method measures GDP at the final output or sales price level.
2. Income Approach: This approach calculates GDP by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies.
3. Expenditure Approach: This approach calculates GDP by adding up consumption, investment, government spending and net exports.

Uses

GDP is used worldwide as an economic barometer. It is used to compare the economic performance of different countries, and to measure the growth or decline of a country's economy. It is also used to determine whether an economy is in a recession or in an expansion.

Criticisms

While GDP is a useful measure of economic activity, it has its limitations and criticisms. It does not account for the distribution of income among the residents of a country, nor does it consider the sustainability of growth. It also does not measure the quality of life or happiness of the residents of a country.

See also

• Economics
• Economic growth
• Economic indicator
• National income accounting

References

Gross Domestic Product Resources
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