Dr. Anamika Shrivastava NCERT Economics · Class 11 & 12

Glossary term

Gross Domestic Product (GDP): Meaning and Definition

Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated

Gross domestic product (GDP) is the total market value of all final goods and services produced within a country's borders during a given period, usually one year. It counts production by residents and foreign-owned firms alike, as long as it happens inside the country.

In more detail

GDP can be measured in three ways that give the same total: adding value added by all sectors, adding all spending on final goods, or adding all incomes earned. Real GDP removes the effect of price changes by valuing output at base-year prices, so it shows true growth. Per capita GDP divides the total by population.

Example

If a Japanese company's car plant in India produces cars worth ₹500 crore this year, the full ₹500 crore is part of India's GDP, because production took place in India. The profit it sends home to Japan is subtracted only later, when GDP is converted to gross national product.

Key points

  • Only final goods are counted, to avoid double counting.
  • “Gross” means depreciation has not been subtracted.
  • GDP at market prices = C + I + G + (X − M).

Common mistake

Treating a rise in nominal GDP as growth in output. Prices alone can raise it.

Value addedGross national productGDP deflator

Where it is explained

GDP and the three ways of measuring it are explained in Class 12 Macroeconomics Chapter 2: National Income Accounting.