Gross Domestic Product - GDP

Updated: 2006-09-27 09:51

The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDP = C + G + I + NX


"C" is equal to all private consumption, or consumer spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)

GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living. Critics of using GDP as an economic measure say the statistic does not take into account the underground economy - transactions that, for whatever reason, are not reported to the government. Others say that GDP is not intended to gauge material well-being, but serves as a measure of a nation's productivity, which is unrelated.

GNP and GDP tend to be used as synonyms, although GDP is definitely the preferred measure among economists and is gaining popularity in general conversation as well; the two measures are fairly close numerically.

The difference is that GDP measures all production within a country's borders, by whoever happens to be working here; GNP measures the production of all citizens of a country, wherever they happen to be working. (Maybe you can remember the "N" in GNP stands for "anywhere").

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