Gross Domestic Product (GDP) is the central measure of an economy's output, capturing the total monetary value of all final goods and services produced within a country's borders over a specific period. Economists approach GDP measurement in three equivalent ways: the expenditure approach, which sums spending by consumers, businesses, government, and net exports; the income approach, which adds together all incomes earned in production, including wages, rents, and profits; and the production approach, which sums the value added at each stage of manufacturing. Because all three approaches tally the same transactions from different angles, they must yield identical totals.
The most commonly cited formulation is the expenditure identity, expressed as \( GDP = C + I + G + (X - M) \), where C is consumption, I is investment, G is government spending, X is exports, and M is imports. The term (X − M) represents net exports. Because the identity measures transactions within national borders, it differs from Gross National Product (GNP), which tallies output produced by a country's residents regardless of location.
GDP can be reported in nominal terms, meaning at current market prices, or in real terms, meaning adjusted for inflation using a base year's prices so that only true changes in output are reflected. The ratio between nominal and real GDP yields the GDP deflator, calculated as nominal GDP divided by real GDP and multiplied by 100, which serves as a broad price index covering all domestically produced goods and services. Dividing total GDP by a country's population gives GDP per capita, a widely used proxy for average living standards and a tool for cross-country comparisons.