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?
How Is GDP Determined?
GDP can be determined in three ways:
- the product (or output) approach;
- the income approach; and
- the expenditure approach.
The product approach is the most direct, summing the outputs of every class of enterprise to arrive at the total. 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 works on the principle that the incomes of the productive factors must be equal to the value of their products. This approach determines GDP by finding the sum of all producers' incomes.