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Gross Domestic Product (GDP)

Updated on November 26, 2020 , 24070 views

What is Gross Domestic Product?

The Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.


Gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country. GDP includes all private and public consumption, investments, government outlays, private inventories, paid-in construction costs and the foreign balance of trade. Put simply, GDP is a broad measurement of a nation’s overall economic activity.

GDP may be contrasted with gross national product (GNP), which measures a the overall production of an economy's citizens, including those living abroad, while domestic production by foreigners is excluded. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well.

Formula for GDP

The components of GDP are:

Personal Consumption Expenditures + Business Investment plus Government Spending plus (Exports minus Imports).

Which means:

C + I + G + (X-M).

Types of GDP

There are many different ways to measure a country's GDP. It's important to know all the different types and how they are used.

Nominal GDP

Nominal GDP is the raw measurement that includes price increases. The Bureau of Economic Analysis measures nominal GDP quarterly. It revises the quarterly estimate each month as it receives updated data.

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Real GDP

To compare economic output from one year to another, you must account for the effects of Inflation. To do this, the BEA calculates real GDP. It does this by using a price deflator. It tells you how much prices have changed since a base year. The BEA multiplies the deflator by the nominal GDP.

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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