GDP

Definition

Gross Domestic Product (GDP) measures the total monetary value of all final goods and services produced within a country's borders in a specific time period. It is a primary indicator of a nation's economic performance and health.

5 Must Know Facts For Your Next Test

1. GDP can be calculated using three approaches: production (or output), income, and expenditure methods.
2. Real GDP adjusts for inflation, providing a more accurate reflection of an economy's size and growth over time.
3. GDP per capita divides the GDP by the population, offering insight into the average economic output per person.
4. A rising GDP generally indicates economic expansion, while a falling GDP suggests economic contraction or recession.
5. Nominal GDP values goods and services at current market prices, without adjusting for inflation.

Review Questions

• What are the three primary methods used to calculate GDP?
• How does real GDP differ from nominal GDP?
• Why is GDP per capita an important metric?

Related terms

Inflation:

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Recession:

A significant decline in economic activity across the economy lasting more than a few months, typically visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Economic Growth: An increase in the amount of goods and services produced per head of the population over time.