Gross Domestic Product (GDP)

Definition

GDP is the market value of all final goods and services produced within a country or region during a certain period, typically one year. There are four significant aspects to understanding the concept.

1. GDP is a concept of value.
   We cannot determine whether something constitutes wealth from its material form alone, let alone measure its magnitude.

2. GDP is a geographical concept.
   Gross Domestic Product, as the name suggests, is the value created within a territory.

3. GDP is a flow concept, whereas wealth is a stock concept.
   Our wealth refers to our possessions at a given moment; GDP, as a flow concept, refers to the value created over a period.

4. GDP is the total value of all final goods and services, excluding goods and services without market prices.

Measurement

Expenditure Method is the most commonly used method to measure GDP. Expenditure falls into four categories: consumption (C), investment (I), government purchases (G), and net exports (NX), so that GDP equals the sum of these categories:

\[ GDP = C + I + G + NX\]

It sums all expenditure on final goods and services; that sum is GDP.

There are two significant aspects that have been overlooked by the mainstream economics:

1. Pseudo-GDP.
   Government purchases (G) is mixed with pseudo-GDP because it use other people's money and mind others' business.

2. The Expenditure Method does not apply to GDP production.
   It is merely a classification and summation of already produced GDP. It is incorrect to follow the equation blindly, such as assuming that the increase of G will compensate for the decrease of C and I and keep the GDP unscathed.