What Is It?
Gross Domestic Product (GDP) is the total value of the goods and services that are produced within a country's borders by citizens and non-citizens in a fiscal year.
How Is It Calculated?
Gross Domestic Product (GDP) is calculated using one of three methods:
- Production Method: The sum of all value added to each stage of production of all goods and services.
- Income Method: The sum of all wages, profits, interest, and rents.
- Expenditure Method: The sum of the purchase values of all goods and services.
There will be slight variances when comparing these three methods, but they produce fundamentally the same result.
As a point of reference, Gross National Product (GNP) is the total value of goods and services that are produced by the citizens of a country both domestically and abroad.
What Does It Mean?
GDP is a broad measure of a country’s overall domestic production and so gives an overview of a country’s economic health. It is among the more important indicators that policymakers, investors, and businesses use in strategic decision-making.
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