Measuring a Country's Economic Health

GDP, or Gross Domestic Product, is the total value of all final goods and services produced within a country during a specific time period (usually a year).

Why GDP?

Economists use GDP to compare the size and growth of economies. A rising GDP usually means more jobs and higher incomes, while a shrinking GDP can signal trouble.

How Is GDP Calculated?

There are three main methods:

• Production Approach: Add up the value of all goods and services produced.
• Income Approach: Add up all incomes earned (wages, rents, interest, profits).
• Expenditure Approach: Add up all spending (consumption + investment + government spending + net exports).

\( \text{GDP} = C + I + G + (X - M) \) where \( C \) is consumption, \( I \) is investment, \( G \) is government purchases, \( X \) is exports, and \( M \) is imports.

Real vs. Nominal GDP

• Nominal GDP measures output using current prices.
• Real GDP adjusts for inflation, giving a clearer picture of true economic growth.

Limitations

GDP doesn't count unpaid work or measure happiness, but it's still a powerful tool for tracking economic progress.