What does 'Gross Domestic Product' mean?

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Gross Domestic Product (GDP) is a measure of the total value of all goods and services produced within a country in a given period of time, typically a year. It is the most commonly used indicator of a country’s economic activity and performance.

GDP is typically calculated by adding up the value of all goods and services produced in a country, including both private and government consumption, investments, and net exports (exports minus imports). There are different ways to measure GDP, but the most commonly used method is the expenditure approach, which calculates GDP as the sum of all spending on goods and services by households, businesses, and government, plus investment and net exports.

There are three main ways to calculate GDP:

  • The expenditure approach: GDP is calculated as the sum of consumer spending (C), investment (I), government spending (G), and net exports (X – M)
  • The income approach: GDP is calculated as the sum of all income earned by factors of production, such as wages, rent, profits, and interest.
  • The value-added approach: GDP is calculated as the sum of the value added by each firm or industry in the production process.

It’s worth noting that GDP is considered a broad measure of economic activity and growth, it doesn’t account for externalities such as income inequality, environmental degradation, and social well-being. Also, GDP does not take into account unpaid work, such as care work, or the underground economy, which can lead to an overestimation of economic activity.

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