What is Gross Domestic Product?

Gross domestic product , GDP as it is referred to is a measure of the total domestic economic activity. It is the sum of all the income earned by the production of goods and services of an economic territory. GDP is equivalent to the value added to the economy from the productive activities of  Households, Government, Financial Corporations, Non-Financial Corporations, and Non-Profit Institutions Serving Households.

GDP is measured in three ways.

• The final consumption of households, government plus investment plus net exports of goods and services.
• the sum of gross value added by those who produce goods and services plus taxes and subsides on product.
• the sum of wages salaries, compensation of employees, taxes less subsides plus gross operating surplus

How is  the Growth  Rate of GDP Calculated?

GDP Growth rate is calculated from aggregates of two consecutive points in time. GDP current period divided by  GDP previous previous period minus 1

• (Current Year)/(Previous Year) -1

• alternatively the ratio can be calculated as follows    

Previous period GDP) - (Current period GDP) / (Current period GDP) * 1

Constant Price GDP vs. Real GDP

Nominal GDP  or money GDP is the amount spent to produce output. Real GDP refers to an effort to correct this number for the effects of inflation in order to estimate the the sum of the actual quantities of goods and services making up GDP.

Constant Price GDP expresses value using the average price of a selected year, this is known as the base year. A constant price series shows how the quantities or volume of goods have changed over time and are often referred to as the Volume Measure of GDP.

It is preferable to avoid the term Real GDP as this connotes  the deflation of GDP by some measure not generally that of GDP itself.

GDP is the sum vale of all the goods and services produced within  an economy, GNP or Gross National Product, is the sum   value of  goods and services produced by permanent residents of a country regardless of location. The important distinction between the two rest on differences in counting production by foreigners in a country and by nationals outside of a country. For GDP production by foreigners within a country is counted and production by nationals outside that country is excluded. For GNP, production by foreigners within a country is not counted and production by by nationals outside of that country is counted. GDP is then is the value of goods and services produced within a country, GNP is is the value of production by citizens of a country.