What is gross domestic product?

Gross domestic product or GDP is an economic indicator that serves to reflect the total number of goods and services that have been produced by a country in a given period of time. Of course, GDP only takes into account final production, otherwise the accounting it would become double. Furthermore, GDP is limited to measuring those activities that have been carried out within a single country.

What is GDP for?

The concept of gross domestic product therefore defines the level of wealth of a country and its capacity for growth and its capacity to recession. This indicator is used to study the economic situation of each country. The higher the GDP, the more wealth a country generates.

For this reason, GDP growth is essential to consolidate the economic growth of a territory. If the GDP increases, the value of all the goods produced by a specific country increases, so that more benefits will be generated for its economy.

Thus, to calculate gross domestic product, both factor cost and market price cost are taken into account. This is the GDP formula:

PIB = C + I + G + XM

However, we must bear in mind that there are several ways to calculate GDP. Discover the different ways that exist to calculate the GDP of a territory depending on the aspects to which it refers.

On the other hand, there is a differentiation between Nominal GDP and between real GDP, in which nominal GDP takes into account current prices and real GDP studies those prices that are constant. From this, the inflation of products and prices with their corresponding evolution.

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