GDP Formula
Calculate Gross Domestic Product using the expenditure approach C+I+G+NX.
The primary measure of a country's total economic output and year-over-year growth.
The Formula
GDP = C + I + G + (X - M)
GDP measures the total value of all goods and services produced within a country in a given period. The expenditure approach sums all spending categories in the economy.
Variables
| Symbol | Meaning |
|---|---|
| GDP | Gross Domestic Product (in currency units) |
| C | Consumer spending (household purchases of goods and services) |
| I | Investment (business spending on equipment, construction, inventory) |
| G | Government spending (public sector purchases) |
| X | Exports (goods and services sold to other countries) |
| M | Imports (goods and services bought from other countries) |
Example 1
A small economy has: C = $800B, I = $200B, G = $300B, X = $150B, M = $180B
GDP = 800 + 200 + 300 + (150 - 180)
GDP = 800 + 200 + 300 + (-30)
GDP = $1,270 billion
Example 2
GDP was $2,000B last year and $2,100B this year. What is the real growth rate?
Growth = (2,100 - 2,000) / 2,000 × 100
Growth rate = 5%
When to Use It
Use the GDP formula when:
- Measuring the economic output of a country
- Comparing economies across different nations
- Analyzing the contribution of each spending sector
- Tracking economic growth or recession over time
Key Notes
- Avoids double-counting: GDP counts only final goods and services, not intermediate goods. The steel used to make a car is not counted separately — only the car's final sale price is counted.
- GDP vs GNP: GDP measures output produced within a country's borders. GNP (Gross National Product) measures output produced by a country's residents regardless of location. For most countries, these are close.
- Nominal vs real GDP: Nominal GDP uses current prices; real GDP adjusts for inflation. Comparing GDP growth over time requires real GDP to separate actual output growth from price increases.
- What GDP excludes: GDP doesn't measure income inequality, quality of life, environmental damage, unpaid household work, or the shadow economy. A country can have high GDP but poor living standards.
- Net exports can be negative: If a country imports more than it exports, NX is negative, which reduces GDP. The US regularly runs a trade deficit, meaning NX pulls down its GDP figure.