GDP

In economics, GDP means Gross Domestic Product.

GDP is defined as the value of all goods and services produced within the geographic territory of an economy in a given interval, such as a year.

GDP is distinguished from GNP, or Gross National Product, which is defined as the value of goods and services produced in a given interval by factors of production owned within an economy. More simply, GDP measures income generated within a territory whereas GNP measures income received within it. GDP and GNP are the most commonly known measures of national income and output. Nominal GDP is a measure of money spent. Real GDP corrects the gross nominal GDP figure for inflation, making real GDP more useful for historical comparison. Nominal GDP is sometimes called money GDP, and real GDP is sometimes called inflation-corrected GDP or constant price GDP. A well-known textbook formula defines GDP as the sum of consumer expenditure, business investment, government expenditure, and net exports. US GDP statistics are compiled and released quarterly by the Commerce Department’s Bureau of Economic Analysis.

There are two ways to calculate GDP: the output approach and the income approach. The output, or expenditures, approach consists of adding together personal consumption expenditures, investment expenditures by businesses, government purchases of goods and services, and expenditures by foreigners. The income approach adds together wages, rents, interest, profits, and statistical adjustments.

So, putting the output approach into a mathematical equation looks likes this:

GDP = C + I + G + X, where C is personal consumption, I is business investment, G is government investment, and X is net exports.

The income approach would like this:

GDP = employee compensation + rents + interest + corporate profits + dividends + retained corporate earnings.

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