Definition Definition

Gross Domestic Product (GDP)

What Is Gross Domestic Product?

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced in an economy, evaluated at their market prices within a certain period of time (usually a year). It is often shortened to GDP. 

Calculation of GDP

GDP is calculated by adding up the value-added at each stage of production and so it, unfortunately, excludes the value of unpaid work (such as caring and reproductive labour performed at home). 

The formula to calculate GDP is given below:

GDP = C + G + I + NX 

(C = consumption, G = government spending, I = investment, and NX = net exports)

Here, adding the consumption, government spending, investments and net exports would give the Gross Domestic Product (GDP).

Gross Domestic Product is nowadays the international standard for calculating and comparing the economical growth of nations around the globe. 

There is more than one way to calculate the GDP of a country. Calculating expenditures, incomes or production can be a good way to look at the economic state of a nation.

GDP is often adjusted to inflation and change in population and based on that it can be of two basic types - Real GDP and Nominal GDP. Nominal GDP does not take inflation, population etc. into account while the Real GDP does. 

Another type - GDP Per Capita, on the other hand, calculates the Gross Domestic Product per person so that it is heavily dependent on the population of a country.


Use the Term in Sentences:

  • GDP Purchasing Power Parity helps compare the nation’s GDP with others by calculating in international currencies. 
  • GDP growth rate measures the year by year economic growth of a nation that is calculated via comparison.


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