GDP Calculator
The GDP (gross domestic product) can be calculated using either the expenditure approach or the resource cost-income approach below. If any clarification on the terminology or inputs is necessary, refer to the information section below the calculators.
Expenditure Approach
Using this approach: GDP = personal consumption + gross investment + government consumption + net exports of goods and services
Resource Cost-Income Approach
Using this approach: GNP = employee compensation + proprietors' income + rental income + corporate profits + interest income
GDP = GNP + indirect business taxes + depreciation + net income of foreigners*
* Net income of foreigners refers to the income that domestic citizens earn abroad subtracted from the income foreigners earn domestically.
Gross Domestic Product
Gross domestic product is defined by the Organisation for Economic Co-operation and Development (OECD) as "an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs)." More simply, it is a monetary measure of the market value of final goods produced over a period of time, typically quarterly or yearly, often used to determine the economic performance of a region or country. Generally, growth of more than two percent indicates significant prosperous activity in the economy, while two consecutive three-month periods of contraction may indicate that an economy is in recession.
Measuring GDP
GDP can be measured in a number of different ways:
- Production approach: the gross value of the goods and services added by all sectors of the economy such as agriculture, manufacturing, energy, construction, the service sector, and the government. In each sector, gross value added = gross value of output − value of intermediate consumption. Most countries use this approach, though it can be difficult to differentiate between intermediate and final goods.
- Resource cost-income approach: the addition of profit and wages, as well as indirect business taxes, depreciation, and the net income of foreigners.
- Spending (expenditure) approach: the value of the goods and services purchased by households and the government, including investment in machinery and buildings, plus the value of exports reduced by the total value of imports.
In the United States, the Commerce Department estimates GDP using all three approaches every three months, surveying hundreds of thousands of firms and households and collecting data from government departments overseeing activities such as agriculture, energy, health, and education. Because the initial estimate is based on a partial compilation of the data, a revised estimate is often released once the full data is available and analyzed, usually a few months later. According to the International Monetary Fund, not all productive activity is included in GDP estimates: unpaid work (at home or by volunteers) and black-market activities are excluded because they are difficult to measure and verify. A baker who bakes a loaf for a customer contributes to GDP, but not if he bakes the same loaf for his family — though the ingredients he purchased do count.
The calculators above measure GDP using two of these approaches: the expenditure approach and the resource cost-income approach. The production approach is just a simple addition of the added values of all sectors.
Expenditure Approach
GDP = personal consumption + gross investment + government consumption + net exports of goods and services
- Personal consumption: typically the largest GDP component, comprised of durable goods, nondurable goods, and services such as food, rent, jewelry, gasoline, and medical expenses (not including the purchase of new housing).
- Gross investment: business investment in equipment, but not the exchange of existing assets. Constructing a new factory and purchasing machinery and equipment for it is a gross investment; purchasing financial products is classified as "saving" rather than investment.
- Government consumption: the sum spent by the government on final goods and services such as public servant salaries, weapon purchases, and any investment expenditures, but not transfer payments like social security or unemployment benefits.
- Net exports: gross exports minus gross imports.
Resource Cost-Income Approach
GNP = employee compensation + proprietors' income + rental income + corporate profits + interest income
GDP = GNP + indirect business taxes + depreciation + net income of foreigners
- GNP (gross national product): similar to GDP, but it is the market value of all products and services produced in a year through the labor and property supplied by the country's citizens.
- Employee compensation: the total paid to employees for work performed, including wages, salaries, and employer contributions to social security and similar programs.
- Proprietors' income: income received by non-corporate businesses, including sole proprietorships and partnerships — payments for labor, capital, land, and entrepreneurship.
- Rental income: income received by property owners, excluding rent paid to corporate real estate companies.
- Corporate profits: a corporation's income, whether paid to stockholders or reinvested.
- Interest income: property income that owners of financial assets such as deposits, debt securities, and loans receive in return for their investment.
- Indirect business taxes: general sales taxes, business property taxes, license fees, etc., but not subsidies.
- Depreciation: also called the capital consumption allowance — the amount a country must spend to maintain, rather than increase, its productivity.
- Net income of foreigners: the income domestic citizens earn abroad minus the income foreigners earn domestically.
GDP as a Comparison of Living Standards
Typically, nominal GDP estimates are used to compare regions and countries. However, nominal GDP does not account for the cost of living in an area, and fluctuations in a currency's exchange rate can result in significant differences in reported nominal GDP. When comparing living standards between nations, GDP per capita at purchasing power parity (PPP) can be a better indicator, because PPP estimates the exchange rate at which the same basket of goods costs the same in either currency. Since the purchasing power remains the same either way, GDP per capita at PPP better represents differences in living standards.