Thegrossdomesticproduct(GDP)orgrossdomesticincome(GDI)istheamountofgoodsandservicesproducedinayear,inacountry.Itisthemarketvalueofallfinalgoodsandservicesmadewithinthebordersofacountryinayear.Itisoftenpositivelycorrelatedwiththestandardofliving,alternativemeasurestoGDPforthatpurpose.
Grossdomesticproductcomesundertheheadingofnationalaccounts,whichisasubjectinmacroeconomics.
GDPcanbedeterminedinthreeways,allofwhichshouldinprinciplegivethesameresult.Theyaretheproduct(oroutput)approach,theincomeapproach,andtheexpenditureapproach.
Themostdirectofthethreeistheproductapproach,whichsumstheoutputsofeveryclassofenterprisetoarriveatthetotal.Theexpenditureapproachworksontheprinciplethatalloftheproductmustbeboughtbysomebody,thereforethevalueofthetotalproductmustbeequaltopeople'stotalexpendituresinbuyingthings.Theincomeapproachworksontheprinciplethattheincomesoftheproductivefactors("producers,"colloquially)mustbeequaltothevalueoftheirproduct,anddeterminesGDPbyfindingthesumofallproducers'incomes.
Economists(sinceKeynes)havepreferredtosplitthegeneralconsumptiontermintotwoparts;privateconsumption,andpublicsector(orgovernment)spending.Twoadvantagesofdividingtotalconsumptionthiswayintheoreticalmacroeconomicsare:
Privateconsumptionisacentralconcernofwelfareeconomics.Theprivateinvestmentandtradeportionsoftheeconomyareultimatelydirected(inmainstreameconomicmodels)toincreasesinlong-termprivateconsumption.
Ifseparatedfromendogenousprivateconsumption,governmentconsumptioncanbetreatedasexogenous,sothatdifferentgovernmentspendinglevelscanbeconsideredwithinameaningfulmacroeconomicframework.