Gross Domestic product

GDP at purchaser's prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products.

GDP is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources.

The Gross Domestic Product measures the value of economic activity within a country. Strictly defined, GDP is the sum of the market values, or prices, of all final goods and services produced in an economy during a period of time.

GDP is a number that expresses the worth of the output of a country in local currency. GDP is calculated for a specific period of time, usually a year or a quarter of a year.

GDP tries to capture all final goods and services as long as they are produced within the country, thereby assuring that the final monetary value of everything that is created in a country is represented in the GDP.

The important distinction between GDP and GNP rests on differences in counting production by foreigners in a country and by nationals outside of a country.

For the GDP of a particular country, production by foreigners within that country is counted and production by nationals outside of that country is not counted.

GDP is an excellent index with which to compare the economy at two points in time. That comparison can then be used formulate the growth rate of total output within a nation.

GDP can be defined in two forms
1) Nominal GDP
2) Real GDP

Nominal GDP is the sum value of all produced goods and services at current prices. This is the GDP that is explained in the sections above. Nominal GDP is more useful than real GDP when comparing sheer output, rather than the value of output, over time.

Real GDP is the sum value of all produced goods and services at constant prices. The prices used in the computation of real GDP are gleaned from a specified base year. By keeping the prices constant in the computation of real GDP, it is possible to compare the economic growth from one year to the next in terms of production of goods and services rather than the market value of these goods and services. In this way, real GDP frees year-to-year comparisons of output from the effects of changes in the price level.

When comparing GDP between years, nominal GDP and real GDP capture different elements of the change.

Nominal GDP captures both changes in quantity and changes in prices. Real GDP, on the other hand, captures only changes in quantity and is insensitive to the price level.

GDP is the single most useful number when describing the size and growth of a country's economy. An important thing to consider, though, is how GDP is connected with standard of living. After all, to the citizens of a country, the economy itself is less important than the standard of living that it provides.

GDP per capita, the GDP divided by the size of the population, gives the amount of GDP that each individual gets, on average, and thereby provides an excellent measure of standard of living within an economy.