Gross Domestic Product (GDP)
Gross Domestic Product (GDP) measures the value of final goods and services produced within a country over a particular period. It is one of the main measures used to assess the size, performance and growth of an economy. GDP can be measured quarterly or annually and is commonly used to compare economic performance over time or across countries.
How is GDP measured?
There are three main approaches to measuring GDP:
- Output approach: measures the value added by businesses and industries across the economy.
- Expenditure approach: measures spending by households, businesses and government, together with net exports.
- Income approach: measures income generated through production, including wages and company profits.
In principle, all three approaches should produce broadly the same result.
What is the difference between nominal and real GDP?
Nominal GDP values output using current prices, meaning an increase can reflect higher prices as well as greater production.
Real GDP adjusts for changes in prices, making it more useful for assessing whether the actual volume of economic activity has increased or decreased.
GDP is an important measure of economic performance, but it does not capture everything that matters for living standards. It does not, for example, directly measure how income is distributed, unpaid activity or wider measures of wellbeing.
