Gross domestic product
The gross domestic product (GDP) or gross domestic income (GDI) is one of
the measures of national income and input for a given country's economy.
GDP can be defined in three ways, all of which are conceptually
identical. First, it is equal to the total expenditures for all final
goods and services produced within the country in a stipulated period of
time (usually a 365-day year). Second, it is equal to the sum of the
value added at every stage of production (the intermediate stages) by all
the industries within a country, plus taxes less subsidies on products,
in the period. Third, it equal to the sum of the income generated by
production in the country in the period—that is, compensation of
employees, taxes on production and imports less subsidies, and gross
operating surplus (or profits).
The most common approach to measuring and quantifying GDP is the
GDP = consumption + gross investment + government spending + (exports
- imports), or,
GDP = C + I + G + (X - M).
Components of GDP
Each of the variables C (Consumption), I (Investment), G (Government
spending) and X - M (Net Exports) (where GDP = C + I + G + (X - M) as
* C (Consumption) is private consumption in the economy. This
includes most personal expenditures of households such as food, rent,
medical expenses and so on but does not include new housing.
* I (Investment) is defined as investments by business or households in
capital. Examples of investment by a business include construction of a
new mine, purchase of software, or purchase of machinery and equipment
for a factory. Spending by households (not government) on new houses is
also included in Investment.
* G (Government spending) is the sum of government expenditures on final
goods and services. It includes salaries of public servants, purchase of
weapons for the military, and any investment expenditure by a government.
It does not include any transfer payments, such as social security or
* X (Exports) is gross exports. GDP captures the amount a country
produces, including goods and services produced for other nations'
consumption, therefore exports are added.
* M (Imports) is gross imports. Imports are subtracted since imported
goods will be included in the terms G, I, or C, and must be deducted to
avoid counting foreign supply as domestic.
Types of GDP and GDP growth
1. Current GDP is GDP expressed in the current prices of the period
2. Nominal GDP growth is GDP growth in nominal prices (unadjusted for
3. Real GDP growth is GDP growth adjusted for price changes.