What Is Gross Domestic Product (GDP)?

What Is Gross Domestic Product (GDP)?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

Gross Domestic Product, or GDP, is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. It serves as a comprehensive scorecard of a given country’s economic health. GDP includes all private and public consumption, government outlays, investments, additions to private inventories, paid-in construction costs, and the foreign balance of trade.

Related Questions

1. How is GDP calculated?

GDP can be calculated using three methods: the production approach, the income approach, and the expenditure approach. The most straight forward is the expenditure approach, which sums up the total spending on all final goods and services in an nation.

2. What is Real GDP?

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Real GDP is an inflation-adjusted measure that reflects the quantity of goods and services produced by an economy in a given year, expressed in base-year prices. This economic metric is used to compare GDP over time and across borders, eliminating the effects of price changes.

3. What is Nominal GDP?

Nominal GDP is a measure of an economy’s economic performance. It includes current prices and doesn’t take into account changes in inflation. Because of this, nominal GDP can appear higher than real GDP.

4. Why is GDP important?

GDP serves as a vital economic measure as it is a reflection of what a country’s economy produces. This includes the value of all goods and services. Therefore, it serves as a comprehensive measure of total national output and provides a key measure of the economic health of a country.

5. Can GDP measure a nation’s well-being?

While GDP is an essential measure of economic performance, it’s not a perfect indicator of a nation’s well-being. For instance, GDP doesn’t account for income inequality, nor does it consider non-economic factors like environmental quality, health, or happiness. Therefore, it should be used alongside other metrics when evaluating a nation’s overall well-being.