The Gross Domestic Product (GDP) is an economic construct that measures a country’s production in a given amount of time. The GDP includes all goods and services produced in a country regardless of their purpose. It aggregates all private and public consumption, investment, government outlays and net exports. Mostly calculated on an annual basis, the GDP is one of the most commonly used indicators of economic activity. The GDP is a good measure of the absolute size of an economy but it is not adjusted for a country’s size, and thus not perfectly suited for country to country comparisons.
A construct often used to make the GDP comparable is the GDP per capita, which is derived by simply dividing the GDP by the number of the respective country’s residents. GDP per capita is often used as an indicator for a country’s standard of living and although not perfectly accurate, it provides a decent benchmark.
A concept closely related to the GDP is the Gross National Product (GNP) (also known as Gross National Income (GNI)). In contrast to the GDP, which measures production on a geographic basis, the GNP is calculated based on ownership. Hence, the production of a factory in China that is owned by an American company would be included in the GNP of the USA and in the GDP of China. GNP used to be the official measure of production in the U.S. but has been replaced by the GDP in 1991.
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