GDP is a measure of all final goods and services produced over a period of time (typically a year, although quarterly and monthly are common).
There are two methods of calculating GDP – the Expenditure Approach (adding up all expenditures in the economy) and the Income Approach (adding up all incomes in the country). The formulas are below.
This method of calculating GDP is often called “Nominal” “Original” or “Historic” GDP. It does not measure changes due to inflation or cost of living, only the actual dollar value transactions (for that see Real GDP).
Expenditure approach: GDP = Consumer spending (C) + Investment (I) + Government spending (G) + Net exports (Nx).
Income approach: GDP = Labor Income (W) + Rental Income (R) + Interest Income (I) + Profits (PR).
Expenditure approach – Consumer spending is $4,000,000, investment is $2,000,000, government spending is $3,000,000, and net exports are $6,000,000.
GDP (expenditure approach) = $4,000,000 + $2,000,000 + $3,000,000 + $6,000,000 = $15,000,000
Income approach – Labor income is $2,000,000, rental income is $8,000,000, interest income is $4,000,000, profits are $1,000,000.
GDP (income approach) = $2,000,000 + $8,000,000 + $4,000,000 + $1,000,000 = $15,000,000.
- Georgia State University – EconPort – Examples of calculating GDP – examples of how to calculate GDP using both the income and expenditures methods.
- Georgia State University – EconPort – Expenditures Approach to calculating GDP – an explanation of how to calculate GDP using the expenditures approach.
- Wikipedia – GDP – Explanation of GDP and how to use it for comparison of economy sizes.
- OECD – GDP Country Data Chart – The OECD’s country-specific data on GDP.
- IMF (YouTube) – What is GDP? – A video from the IMF explaining what GDP is and how it works.
- Khan Academy – GDP: Measuring National Income – Khan Academy’s GDP courses in the Macroeconomics section. It covers a broad section of topics from national income to inequality and the differences between real and nominal GDP.
- jodiecongirl (YouTube) – Calculating Gross Domestic Product – An overview video of how to calculate the Gross Domestic Product.