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Gross domestic product
The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and input for a given country’s economy. GDP is defined as the total cost of all completed goods and services produced within the country in a stipulated period of time (usually a 365-day year). It is sometimes regarded as the sum of profits added at every level of production (the intermediate stages) of all final goods and services produced within a country in a stipulated timeframe, and it is rarely given a monetary value.
The most common approach to measuring and quantifying GDP is the expenditure method:
GDP = consumption + gross investment + government spending + (exports – imports), or,
GDP = C + I + G + (X-M).
“Gross” means depreciation of capital stock is not taken into consideration. If net investment (which is gross investment taking depreciation into consideration) is substituted for gross investment in the equation above, then the formula for net domestic product is obtained. Consumption and investment in this equation are expenditure on final goods and services. The exports-minus-imports part of the equation (often called net exports) adjusts this by subtracting the part of this expenditure not produced domestically (the imports), and adding back in domestic area (the exports).
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Types of GDP and GDP growth
- Current GDP is GDP expressed in the current prices of the period being measured
- Nominal GDP growth is GDP growth in nominal prices (unadjusted for price changes).
- Real GDP growth is GDP growth adjusted for price changes.
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. The term “inflation” once referred to increases in the money supply (monetary inflation); however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflation. Inflation can also be described as a decline in the real value of money-a loss of purchasing power in the medium of exchange which is also the monetary unit of account. When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time.