GDP is a widely used economic indicator that tells you how much a country is producing in a given year. It is calculated by each country’s government and usually published on a quarterly basis, according to the financial information website Investopedia. GDP helps policymakers, investors and businesses make decisions by letting them know how well a nation’s economy is doing. In general, when a country’s GDP is growing, its citizens are better off and job creation is occurring.
Essentially, GDP is the total monetary value of all the goods and services produced within a country during a certain period of time. It takes into account everything that is bought and sold, from the food you buy at a grocery store to the services you receive at your doctor’s office. GDP also includes the work that people do for themselves, such as cooking or cleaning (although it excludes volunteer work and unpaid activities like caring for children).
There are three different ways to determine GDP, all of which should theoretically give you the same result. The production approach adds up the “value added” at each stage of production, which is gross value of output minus the cost of intermediate inputs into that production (such as flour for bread or an architect’s services). The expenditure approach sums up the spending on all final products and services by households and businesses. This also takes into account purchasing power parity-adjusted exports and imports.
The third method is to calculate GDP using a net national income formula that subtracts a country’s population from its total GDP. This is the most commonly used calculation for comparing GDP between countries.
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