Definition
Gross Domestic Product (GDP)
The market value of all final goods and services produced in an economy over a period of time (usually a year), regardless of who owns the factors of production.
In turn, the GDP is:
- The measure of the final market value of the national output produced by an economy over a time period.
- Calculated through the expenditure approach.
As we saw in the previous section, the expenditure approach calculates the total spending on final goods and services produced in an economy over a time period.
Components of the national spending
The nation spending (and hence the GDP) is calculated by breaking it down into 4 different components:
- Consumer spending (C): all spending made by households on final goods and services during a particular time period.
- Investment (I): investments made:
- By firms on physical capital: money spent on assets used to produce goods and services (factories, machinery, offices...).
- By households and firms on new construction: new housing and other new construction assets.
