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# GDP Calculator (Gross Domestic Product)

How to calculate GDP?How to calculate nominal GDP and real GDPGDP in the global contextImportance in economics and its limitationsInteresting facts

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 quickly answer the question: "how to calculate nominal GDP?"

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

If you are interested in learning how GDP relates to other economic indicators, you may check some of the following tools.

## How to calculate GDP?

GDP (Gross Domestic Product) is a prominent economic-political statistical indicator that 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 household spending on goods and services, 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 that 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 of economic growth. The relation of the nominal and real GDP leads us to the term GDP deflator, which measures the price level 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 for the few countries in the world that compile a monthly GDP index, for example, Finland). Thus, GDP provides a basic ground for regular international comparisons of national economic development.

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

## 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 cannot always demonstrate a precise view of an economy since it does not account for the alteration in price levels and the country's population and omits the dynamic dimension. For these reasons, the following measures were developed which provide a more complete view of economic development:

• Real GDP: an inflation-adjusted measure that indicates the value in base-year prices. It can also be referred to as "constant-price", "inflation-corrected" GDP, or "constant dollar GDP." See our [real GDP calculator] to learn more. (calc:5081)
• GDP per capita: a measure of a country's gross domestic product per person.
• GDP growth rate: in other words, economic growth rate, 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 the 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 income distribution among the country's population. Thus it is not used for measuring income and wealth inequalities.

Still, the strong correlation between Gross Domestic Product and various measures of the quality of life suggests that higher GDP promotes a higher standard of living.

## Interesting facts

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

• William Petty is regarded as the first person to contemplate calculating national income, the predecessor of 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).