Gross Domestic Product (GDP)
Region's gross domestic product, or GDP, is one of several measures of the size of its economy. The GDP of a country is defined as the market value of all final goods and services produced within a country in a given period of time. Until the 1980s the term GNP or gross national product was used. The two terms GDP and GNP are almost identical. The most common approach to measuring and understanding GDP is the expenditure method:
GDP = consumption + investment + government spending + (exports/ imports).
"Gross" means depreciation of capital stock included. Without depreciation, with net investment instead of gross investment, it is the Net domestic product. Consumption and investment in this equation are the expenditure on final goods and services. The exports minus imports part of the equation (often called cumulative exports) then adjusts this by subtracting the part of this expenditure not produced domestically (the imports), and adding back in domestic production not consumed at home (the exports).
Economists (since Keynes) have preferred to split the general consumption term into two parts; private consumption, and public sector (or government) spending. Two advantages of dividing total consumption this way in theoretical macroeconomics are:
Private consumption is a central concern of welfare economics. The private investment and trade portions of the economy are ultimately directed (in mainstream economic models) to increases in long-term private consumption. If separated from endogenous private consumption, government consumption can be treated as exogenous, so that different government spending levels can be considered within a meaningful macroeconomic framework. Therefore GDP can be expressed as:
GDP = private consumption + government + investment + net exports
(or simply GDP = C + G + I + X - M (X - M accounts for exports - imports)
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