Gross Domestic Product (GDP) is the monetary value of all the goods and services produced within a country's borders in a specific period of time, typically a year. It is used to measure the economic activity and growth of a country. Periods shorter than a year are often presented in an annualized or year-over-year format.
There are three ways to calculate GDP:
The expenditure approach: GDP is calculated by adding up all the spending on goods and services within a country. This includes consumer spending, investment spending, government spending, and net exports (exports minus imports).
The income approach: GDP is calculated by adding up all the income earned within a country. This includes wages, rent, interest, and profits.
The output approach: GDP is calculated by adding up the value of all goods and services produced within a country.
All three methods should theoretically give the same result. However, due to the complexity of measuring economic activity and the data limitations, the results may differ slightly.
GDP is a critical metric for markets and is often referred to as 'growth' or 'economic growth'. However actual GDP data is less of a market mover than some other releases because it takes months after quarter-end to get reliable GDP estimates. Early GDP estimates are often revised and sometimes revisions go back years.
