Gross Domestic Product

What Is Gross Domestic Product?

Gross Domestic Product refers to the total value of the final goods and services produced in a particular country by nationals and foreigners residing within a given period. It captures the total monetary or market value of the finished goods manufactured within a country’s geographical confines, and it encourages foreign direct investment. It is used most frequently by developing countries that do not have investments outside their borders (e.g., multinationals)

Deeper Definition

The gross domestic product reveals the economic outlook at a glance, giving insight into the size of an economy and the rates of growth or decline year-on-year or quarter-on-quarter. The recorded data usually make provisions for differences or irregularities that might arise due to price differences or inflation. The gross domestic product can measure the standard of living in a population by calculating the GDP per capita, and the same applies to GDP per worker by which productivity can be measured. GDP helps to determine a country’s economic output adequately. Countries with larger GDPs have greater amounts of goods and services generated internally, which naturally translates to better living conditions. With the aid of GDP as a tool, it is possible to determine the state of a country’s economy, whether or not austerity measures should be put in place or otherwise and it helps make projections following the trends that have been observed about the possibility of economic boom, inflation, recession and so on.

Some of the challenges encountered when GDP is used to measure well-being are changes in the price level or price instability, difficulty in measuring population growth, non-market activities, and military or unproductive expenditure. GDP is commonly measured using the income method, expenditure method, and output method.