Gross Domestic Product, also known as GDP for its acronym, could be defined as the set of goods and services produced and sold in a country’s market during a specific period of time (usually 1 year).

It is used to measure the economic welfare of a specific country or geographical area. If an economy is growing or, on the contrary, is in recession.

This concept is closely related to the concept of GNP. The main difference is that GDP does not take into account the nationality of the producer or seller, only the products or services that have been produced in the territory of the country in question are taken into account.

Considerations about GDP

When evaluating the GDP of a specific country or region, the following considerations must be taken into account:

• There are economic activities that are not included in GDP but that do generate value for the economy.
• It does not take into account the distribution of wealth among families or people.
• Although one country has a higher GDP than another at a given time, it does not necessarily mean that the first has greater welfare.

In this link you can see the ranking of countries according to GDP.

GDP calculation

There are three methods to calculate GDP and the results must match each other:

• Expenditure method: consists of adding the market price value of all purchases made of final goods and services. This would be: household consumption (C), plus government consumption (G), plus investment in new capital (I) and exports (X) minus imports (M).

The formula is:

GDP = C + I + G + X - M

• Added value or supply method: consists of adding the value of company product sales but subtracting the value of raw materials and other intermediate goods used in the production of said products, as appropriate.

Finally, if we subtract subsidies, net indirect taxes (Tiind - Subv) and add the result to the Total Gross Value Added (GVA), we obtain GDP.

The formula is:

GDP = GVA + (Tiind - Subv)

• Income method: consists of the sum of three elements: employee income (RA), Gross Operating Surplus (GOS) and net indirect taxes on subsidies (Tiind - Subv).

The formula is:

GDP = RA + GOS + (Tiind - Subv)

We hope this information is very useful to you.