Gross domestic product (GDP)

Definition

Gross domestic product (GDP) measures the total monetary value of all goods and services produced within a country's borders in a specific time period. It is a key indicator used to gauge the health of a nation's economy.

5 Must Know Facts For Your Next Test

1. GDP can be calculated using three approaches: production, income, and expenditure methods.
2. Real GDP is adjusted for inflation, whereas nominal GDP is not.
3. GDP growth rate is an important indicator of economic performance.
4. Per capita GDP divides the GDP by the population, providing insight into the average economic output per person.
5. High GDP often correlates with higher living standards but does not account for income inequality or environmental degradation.

Review Questions

• What are the three primary methods for calculating GDP?
• How does real GDP differ from nominal GDP?
• Why is per capita GDP an important measure?

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 longer than a few months.

Fiscal Policy:

Government spending policies that influence macroeconomic conditions including taxation and spending decisions.