Key Facts
What is Gross Domestic Product (GDP)?
GDP is a market value of all final goods and services newly produced in a country during some time. Market value means the total amount that people spend or produce measured by the market prices.
What's Omitted from GDP?
GDP does not measure underground economy, unpaid work at home, and informal work as they do not change in great amounts over time.
Measures in GDP
GDP does not measure everything. Remember, (GDP) is the total amount produced in the economy.
Detailed GDP Formula
Consumption, Investment, Governmenet Purchases, and Net Exports are added together to measure the GDP. The key idea is to measure production in the economy over a particular period.
GDP Formula
A country's gross domestic product can be calculated using the following formula: Y = C + I + X + G
Spending Groups
Households, firms, governments, and foreigners are the four spending groups. While consumption is what household spend, investment is what businesses spend.
Government Purchases
Government purchases is used to measure to the GDP and examples include equipment for the military or payment of school teachers.