Gross Domestic Product

Read this section, which explains Gross Domestic Product. The GDP is the dollar value of goods and services produced in a given country in a year. What is the significance of GDP as an economic indicator?

What is the Gross Domestic Product?

Learning Objective

  • Differentiate the product, income, and expenditure approaches to calculating GDP


Key Points

  • GDP per capita is often considered an indicator of a country's standard of living.
  • The product approach sums the outputs of every class of enterprise to arrive at total GDP.
  • The expenditure approach works on the principle that all products must be bought by a consumer; therefore, the value of the total product must be equal to consumers' total expenditures.
  • The income approach measures GDP by adding the incomes that firms pay households for factors of production: wages for labor, interest for capital, rent for land, and profits for entrepreneurship.


Terms

  • GDI

    gross domestic income; the total income received by all sectors of an economy within a nation.

  • GDP

    Gross Domestic Product (Economics). A measure of the economic production of a particular territory in financial capital terms over a specific time period.

  • per capita

    per person


Example

  • The value of all the goods and services produced in the United States in 2011 (GDP) was around $15 trillion.

GDP is the value of all the final goods and services produced in a country during a given time period. Intermediate goods are not counted because they would cause double-counting to occur. GDP only refers to goods produced within a particular country. For instance, if a firm is located in one country but manufactures goods in another, those goods are counted as part of the manufacturing country's GDP, not the firm's home country. BMW is a German company, but cars manufactured in the U.S. are counted as part of the U.S. GDP. GDP is a measure used by economists to determine how productive a country is on the whole.

GDP per capita is often considered an indicator of a country's standard of living. Under economic theory, GDP per capita exactly equals the gross domestic income (GDI) per capita.


GDP Categories - United States
Components of U.S. GDP

Source: Boundless
Creative Commons License This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 License.