Consumption
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Investment
$million
Government purchases
$million
Exports
$million
Imports
$million
Net exports
$million
Gross domestic product
$million

This is the GDP calculator (Gross Domestic Product), which helps you to calculate the aggregate domestic output produced in a given country in a nominal term.

In the following, you will get familiar with the logic of this calculator, and you will be able to answer quickly for the question: "how to calculate nominal GDP?"

We will also explain the difference between real and nominal term together with an alignment of some related definitions.

How to calculate GDP?

GDP (Gross Domestic Product) is a prominent economic-political statistical indicator which measures the total economic output of a particular nation. In other words, GDP determines the value of all final goods and services produced within a country in a given period.

However, GDP can also be expressed as an economy's total domestic expenditures on newly produced goods and services and the total income gained from the production of these goods and services.

Therefore, the GDP calculator can be expressed in three different ways leading to an identical value:

  1. Production output: the sum of gross value added by producers
  2. Income approach: the total income generated by the production process
  3. Expenditure approach: the total spending on goods and services

Following the most transparent and conventional way of computation, our GDP calculator is based on the expenditure approach. Accordingly, gross domestic product (GDP) aggregates four components of expenditure: consumption, investment, government purchases, and net exports.

  1. Consumption covers spending on goods and services by households, except new housing purchases.

  2. Investment embraces spending on new equipment and structures, including households' purchases of new housing.

  3. Government purchases are spending on goods and services by local, state, and federal governments.

  4. Net exports is the difference between

  • the value of goods and services produced domestically and sold abroad - exports

  • and the value of goods and services produced abroad and sold domestically - imports.

    Therefore, net exports = exports - imports.

How to calculate nominal GDP and real GDP

The above-stated summation answers how to calculate nominal GDP which is evaluated at current market prices. In contrast, real GDP is an inflation-adjusted measure which indicates the value in base-year prices. Unlike nominal GDP, real GDP is corrected by the changes in price level; therefore, it provides a more accurate measure for economic growth. The relation of the nominal and real GDP leads us to a term of GDP deflator, which is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.

GDP in the global context

In general, GDP is measured and announced by national government statistical agencies on a quarterly basis (except the few countries in the world that compile a monthly GDP index, as for example Finland). Thus, GDP provides a basic ground for international comparison for national economic development on a regular basis.

In 2017, according to the International Monetary Fund (IMF), the US GDP (19.391 US$billion) reached the highest in nominal value in the world, which was followed by China GDP with 12.015 US$billion. Countries in the European Union in total achieved 17.278 US$billion. The three economies' nominal GDP altogether accounts for more than 60 percent of the world GDP (79.865 US$billion).

Importance in economics and its limitations

Gross domestic product (GDP) is a traditional way to measure economic welfare since individuals have a preference for higher incomes over lower incomes.

However, nominal GDP not always demonstrates a precise view about an economy since it does not account for the alteration in price levels, the population of the country and it omits the dynamic dimension. For these reasons the following measures are developed which provide a more complete perspective about economic development:

  • Real GDP: an inflation-adjusted measure which indicates the value in base-year prices. It can also be referred to as "constant-price", "inflation-corrected" GDP or "constant dollar GDP."
  • GDP per capita: a measure of country's gross domestic product per person.
  • GDP growth rate: in other words economic growth rate, it measures the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

However, it has weaknesses, as GDP disregards the value of the immaterial aspects of social welfare, such as the value of leisure time and the value of a clean environment. Furthermore, GDP does not account for the distribution of income among the population of the country. Thus it is not indicative for measuring income and wealth inequalities.

Interesting facts

  • Before 1991, the official economic indicator in the United States (as most of the other countries as well) was the Gross National Product (GNP) which is the total value of the national output produced by a country's residents regardless the place of production. The measure is firmly connected to the concept of GDP, the vital difference is that GDP is delineated by the country's border, but GNP is defined by its citizenship's activity.

  • William Petty is regarded as the very first person to contemplate the idea of calculating national income, the predecessor of the national production. In his article, published in 1691, he calculated the United Kingdom's national income by estimating consumption using an expected figure for daily per capita expenditure, and from an estimated population (Lepenies, 2016).

Tibor Pal, PhD candidate

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