Definition & Meaning:

This is the acronym of 'Gross Domestic Product'. This statistic measures the size of an economy at a particular point in time (normally every quarter (3 months) of a year). By comparing the 'GDP' between different quarters, you can see how the economy is performing (i.e. if the economy is growing or decreasing in size and by how much). When comparing the economic performance of different countries, it is normal to see it measured in US dollars.

This statistic measures the value of all finished products (called goods) and services in an economy which are bought. It also includes the value of all finished goods and services which are exported to other countries, but subtracts those that are imported.

The most commonly used method for calculating GDP is called 'the expenditure approach'. It is calculated using the following equation:

GDP = C + I + G + (X - M)

  • Consumption (C): Spending by individuals and households on goods and services.
  • Investment (I): Spending by businesses on equipment, buildings, and capital.
  • Government Spending (G): Spending by the public sector on infrastructure, defense, and services.
  • Exports (X): The total of a country's exports in goods and services to all other countries.
  • Imports (M): The total of a country's imports of goods and services from all other countries.

Pronunciation:

Click to hear GDP

Related Vocabulary:

Inflation, Economic Downturn, Recession, Economic Depression.

Exercises:

To learn more vocabulary connected to economics, you can do our free online exercise on describing how the economy is performing.