Answers the Question
How economically productive is a given country?
Calculator for GDP
What Is the GDP?
GDP (gross domestic product) is a measure of the goods and services produced over the course of a year within a single country.
Why Is it Important?
- As a general rule of thumb, a higher GDP is considered more desirable. Politicians and leaders are often under considerable pressure to increase the GDP of their nations.
Formula(s) to Calculate GDP
- GDP = CONSUMPTION + INVESTMENT + GOVERNMENT SPENDING + EXPORTS - IMPORTS
- Assuming that a strong GDP suggests higher standards of living. The benefits of GDP may not accrue evenly over a population.
- Forgetting that goods sold in the black market are often excluded from GDP calculations, even when such activities significantly impact the economy.
- Assuming that increased government spending is necessarily a positive for the economy. Eventually government spending will have to be paid through increased taxes or debt.
- Forgetting that some spending can hurt an economy in the long run. For instance, increased spending on illicit drugs may lead to reduced productivity by residents. Similarly, increased spending on factories may lead to future liabilities that must be repaid (pollution).
- Assuming that GDP and quality of life are equivalent. Many measures have shown that there is not a perfect correlation between the two.
- Forgetting to consider population when comparing the GDP of two nations. Some countries with relatively small populations are incredibly efficient, yet produce less in aggregate than large poor nations.