Glossary Finance Gross Domestic Product

Gross Domestic Product

Definition: Gross Domestic Product (GDP) is a measure of the total economic value of everything produced in a certain area (usually a country) in one year. The wealth of a country is usually measured as GDP per capita. This figure is arrived at by taking the total gross domestic product and dividing it by the number of people in the economy.

Measuring GDP

There are different ways of measuring gross domestic product.

  • One way is to count up all the money spent by individuals, companies and governments on different things in one year and add it together.
  • Another is to count up all the income received by individuals, companies and governments in one year and add that together.
  • Yet another approach is to measure the value of the output of everything produced by individuals, governments and corporations within the area within one year and add that up.

In theory, all three of these approaches, which are known as the expenditure approach, the income approach and the output approach respectively, all ought to yield the same value for gross domestic product. In practice, there are usually slight differences between the values yielded by each.

In modern economies, the rate of growth (or of contraction in cases of recession) of GDP is usually estimated on a quarterly basis.

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