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Definition: gross domestic product from Routledge Dictionary of Economics

The total output of goods and services produced within a given country in a particular time period. It is equal to the sum of the value added by each industry, net of all inputs, including imported intermediate goods: this is equal to the factor incomes of all persons engaged in domestic production. Gross domestic product together with net property income from abroad constitute gross national product.

See also: national income

Summary Article: gross domestic product
From The Hutchinson Unabridged Encyclopedia with Atlas and Weather Guide

Value of all final goods and services produced within a country within a given time period, usually one year. GDP thus includes the production of foreign-owned firms within the country, but excludes the income from domestically-owned firms located abroad. Intermediate goods, such as plastic and steel, are not included, in order to avoid double counting, because they will be turned into final goods. Household goods are included because they are intended for consumption or use rather than to be turned into other goods. GDP changes as total output and/or prices change. A rise in total output means that an economy is growing; two consecutive quarters of decline in total output is the technical definition of recession. Optimal economic growth with full employment is considered to be in the range between 2% and 2.5%. GDP needs to be adjusted to account for inflation because it is affected by changes in prices as well as by changes in output. Inflation-adjusted GDP, known as real GDP, is calculated by dividing nominal GDP by the appropriate price index.

See also gross national product (GNP).

Output is derived from expenditure on goods and services by firms, consumers, and government net of imports; and income (in the form of wages, salaries, interest, rent, and profits) is derived from the production of goods and services. Therefore, GDP can be measured either by the sum of total output or expenditure or incomes. However, in practice there is usually a slight discrepancy between the three because of the highly-complex calculations involved.

GDP ignores unpaid work and natural capital (for example, a forest is regarded as having no value until it is felled), and counts as economic benefits the costs of prisons, pollution, and so on, not distinguishing between desirable and undesirable consequences of economic activity.

GDP fluctuates in relation to the trade cycle and standard of living.

In the UK, the percentage increase in GDP from one year to the next is the standard measure of economic growth.

© RM, 2018. All rights reserved.

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