The Gross Domestic Product (GDP)
The Gross Domestic Product is the value of all goods and services produced in one year. Therefore the GDP is an annual measure. The GDP is stated as a figure, and will grow, shrink, or stay stagnant as a result of economic conditions. There are a few ways that the Gross Domestic Product is calculated. In theory they should all provide the same result. In practice they are similar but not comparatively exact.
Calculating by Output
To define the value of a good or service is not always easy. For example, to create a fictitious chair, one factory produces a metal frame - at a value of $20. Another factory attaches wood over the frame, and the wood has a value of $45. At a retailer the chair sells for $100. What is the value of the chair? Is it $100, or is it $165 (20 + 45 + 100)?
The value that should be included in the GDP is $100. This avoids double counting. The sum of $100 in this example is calculated as a sequence of added values (or differential values). The correct way to calculate the chair's value is $20 + $25 + $55.
Calculating by Income
Since all expenditures on goods and services result in a flow of money as income to those providing the goods and services, then the sum of all income should match the total value of all goods and services. The income approach therefore sums all types of income: salaries and wages; rent; profit; and interest.
Calculating by Expenditure
Similar to calculating by income, calculating by money spent is to sum the flip side of income. Any income paid came out of somewhere (like the bank account of a business). By summing all outlays (expenditures) the result should be the same as summing all incomes. The expenditure approach follows a broad calculation defined as GDP = consumption + gross investment + government spending + net exports. Net exports is calculated as total exports - total imports. In popular economic nomenclature, the equation looks like this:
GDP = C +I + G + (X-M) where:
Gauging economics with GDP
The Gross Domestic Product is a measure of national income, though reported on a quarterly basis. GDP on a per capita basis(a per person basis) shows the average per person wealth. This is an average to be compared to an average of an earlier period (to show growth or shrinkage) but has no bearing on how an individual feels they are fairing financially. As a statistical mean (average) the per capita GDP does not reflect the mid-point wealth. The skewed distribution of wealth pulls the mean towards a value higher than the median (the central value); see the Gini Coefficient.
Recent GDP Measurements
These are percent changes compared to the proceeding period
GDP is a component of the Gross National Product (GNP).
Read more:
Calculating by Output
To define the value of a good or service is not always easy. For example, to create a fictitious chair, one factory produces a metal frame - at a value of $20. Another factory attaches wood over the frame, and the wood has a value of $45. At a retailer the chair sells for $100. What is the value of the chair? Is it $100, or is it $165 (20 + 45 + 100)?
The value that should be included in the GDP is $100. This avoids double counting. The sum of $100 in this example is calculated as a sequence of added values (or differential values). The correct way to calculate the chair's value is $20 + $25 + $55.
Calculating by Income
Since all expenditures on goods and services result in a flow of money as income to those providing the goods and services, then the sum of all income should match the total value of all goods and services. The income approach therefore sums all types of income: salaries and wages; rent; profit; and interest.
Calculating by Expenditure
Similar to calculating by income, calculating by money spent is to sum the flip side of income. Any income paid came out of somewhere (like the bank account of a business). By summing all outlays (expenditures) the result should be the same as summing all incomes. The expenditure approach follows a broad calculation defined as GDP = consumption + gross investment + government spending + net exports. Net exports is calculated as total exports - total imports. In popular economic nomenclature, the equation looks like this:
GDP = C +I + G + (X-M) where:
- C = household consumption expenditures
- I = gross private domestic investment
- G = government consumption and gross investment expenditures
- X = gross exports of goods and services
- M = gross imports of goods and services
Gauging economics with GDP
The Gross Domestic Product is a measure of national income, though reported on a quarterly basis. GDP on a per capita basis(a per person basis) shows the average per person wealth. This is an average to be compared to an average of an earlier period (to show growth or shrinkage) but has no bearing on how an individual feels they are fairing financially. As a statistical mean (average) the per capita GDP does not reflect the mid-point wealth. The skewed distribution of wealth pulls the mean towards a value higher than the median (the central value); see the Gini Coefficient.
Recent GDP Measurements
These are percent changes compared to the proceeding period
| Q1, 2006 | Q2, 2006 | Q3, 2006 | Q4, 2006 |
| 4.8% | 2.7% | 0.8% | 1.5% |
| Q1, 2007 | Q2, 2007 | Q3, 2007 | Q4, 2007 |
| 0.1% | 4.8% | 4.8% | -0.2% |
| Q1, 2008 | Q2, 2007 | Q3, 2008 | Q4, 2008 |
| 0.9% | 2.8% | -0.5% |
GDP is a component of the Gross National Product (GNP).
Read more: