Gross Domestic product

Gross Domestic Product counts all of the output generated within the borders of a country. GDP is composed of goods and services produced for sale in the market and also includes some nonmarket production, such as defense or education services provided by the government.

Not all productive activity is included in GDP. For example, unpaid work (such as that performed in the home or by volunteers) and black-market activities are not included because they are difficult to measure and value accurately.

Theoretically, GDP can be viewed in three different ways
1) The expenditure approach
2) The income approach
3) The production approach

But because GDP is collected at current, or nominal, prices, one cannot compare two periods without making adjustments for inflation.

To determine “real” GDP, its nominal value must be adjusted to take into account price changes to allow us to see whether the value of output has gone up because more is being produced or simply because prices have increased.

GDP is important because it gives information about the size of the economy and how an economy is performing. The growth rate of real GDP is often used as an indicator of the general health of the economy.

When real GDP is growing strongly, employment is likely to be increasing as companies hire more workers for their factories and people have more money in their pockets.

When GDP is shrinking, as it did in many countries during the recent global economic crisis, employment often declines.

GDP is measured in the currency of the country in question. That requires adjustment when trying to compare the value of output in two countries using different currencies.

The usual method is to convert the value of GDP of each country into U.S. dollars and then compare them. Conversion to dollars can be done either using market exchange rates—those that prevail in the foreign exchange market—or purchasing power parity (PPP) exchange rates.

GDP is not a measure of the overall standard of living or well-being of a country. Although changes in the output of goods and services per person (GDP per capita) are often used as a measure of whether the average citizen in a country is better or worse off, it does not capture things that may be deemed important to general well-being.

The quality of life may also depend on the distribution of GDP among the residents of a country, not just the overall level. To try to account for such factors, the United Nations computes a Human Development Index, which ranks countries not only based on GDP per capita, but on other factors, such as life expectancy, literacy, and school enrollment.

GDP is the total value of the goods and services produced by the people of a nation during a year not including the value of income earned in foreign countries

gross domestic product (GDP), total market value of the goods and services produced by a nation’s economy during a specific period of time.

GDP includes all final goods and services—that is, those that are produced by the economic resources located in that nation regardless of their ownership and that are not resold in any form.