gross domestic product

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country in a year.

Expenditure Approach

An approach that adds up total spending on final goods and services produced within the economy.

Consumption (C)

Household spending on goods and services, which is the largest component of GDP.

Investment (I)

Spending on new capital goods like machinery and buildings, not including stocks or bonds.

Government Purchases (G)

Direct government spending on goods and services including wages of public workers, but excluding transfer payments.

Net Exports (NX)

Exports minus imports; imports are subtracted because they are not produced domestically.

Value Added

The value of sales minus the cost of intermediate inputs for each industry.

Gross Domestic Income (GDI)

Total income earned from producing goods and services, showing the relationship between spending and income.

Real GDP

GDP adjusted for inflation, reflecting the actual output using base-year prices.

Nominal GDP

GDP measured using current-year prices, not adjusted for inflation.

GDP Deflator

A measure of inflation calculated as (nominal GDP / real GDP) × 100.

GDP per Capita

GDP divided by the population, interpreted as average income and spending per person.

Paradox of Thrift

When everyone saves more at once, overall spending decreases, leading to job losses and economic decline.

Macroeconomics

The study of the economy as a whole, focusing on aggregate income, output, and spending.

Key Limitations of GDP

GDP does not consider environmental degradation, income inequality, or non-market activities.

Why GDP Still Matters

GDP measures productive capacity, which correlates with well-being indicators like health and education.

Subjective Well-Being

Individuals' assessments of their own lives, providing insights into quality of life beyond economic measures.

Composite Dashboards

Measurement frameworks that assess well-being across multiple dimensions without hiding trade-offs behind a single number.