What is GDP

What is GDP?

GDP, gross domestic product, is the market value of all the final goods and services produced within a country in a given time period.

• The market value refers to the prices at which the items are traded in markets
• Final goods or services are products that are produced for its final user and not as a component of another good/service.
• A country’s GDP only counts goods and services that are produced within a country
• GDP measures the value of production during a given time period; it can be quarterly or annually.

Gross Domestic Product can measure the value of total production, total income and total expenditure.

Gross Domestic Product is divided among four components of expenditure:

• Consumption

  • Consumption includes spending on goods and services by households, except purchases of new housing.

    • Expenditures include durable goods (computer), nondurable goods (apple juice), and services (haircuts).
• Investment
  • Investment includes spending on new capital goods,such as building structures, tools, machines and other instruments.
    • Includes capital goods that were produced by one firm and bought by another.  
    • Investment also includes the purchases of new homes by households
• Government purchases
  • Government purchases refer to the spending on goods and services by the federal, state, and local governments.
• Net exports
  • Net exports is the value of goods/services produced domestically and sold abroad (exports) minus the value of goods/services produced abroad and sold domestically (imports)
    • Value of Exports – Value of Imports

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