Gross Domestic Product (GDP) is a widely-used economic indicator that measures the total value of goods and services produced within a country's borders over a specific period, usually a year. It provides a comprehensive assessment of an economy's overall health and is commonly used by economists, policymakers, and analysts to gauge the level of economic activity and growth.
GDP is calculated by summing up the value of all final goods and services produced in an economy. To avoid double-counting, only the value added at each stage of production is considered. This can be assessed through three main approaches: the production or output approach, the income approach, and the expenditure approach.
The production or output approach estimates GDP by summing up the value of goods and services produced by each sector of the economy, such as agriculture, manufacturing, and services. The income approach computes GDP by adding up the total income earned by individuals and businesses, including wages, profits, and rents. The expenditure approach measures GDP by evaluating the total spending on goods and services by households, businesses, governments, and foreign entities.
GDP serves as a key metric to compare the economic performance of different countries and is used to track changes in economic growth or contraction over time. It helps identify trends, patterns, and fluctuations in the economy, enabling policymakers to make informed decisions regarding fiscal and monetary policies. GDP figures also play a crucial role in determining a country's overall standard of living and well-being.
