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Gross domestic product (GDP) or gross domestic product is an economic indicator used to measure output in a given country. It is defined as the total value of production (value of goods and services produced) within a given country in a year (determined by economic agents residing within the national territory). It is also a measure of income from production in a given country. In macroeconomics it is also called economic production or simply annual production.
Gross domestic product is often used as an indicator of a country’s economic activity, while GDP per capita, on the other hand, serves as an indicator of the standard of living, providing an indicative value of purchasing power.
The GDP (or GDP, since the expression Internal Gross Product is also used) counts the production oriented towards the final demand. This means that, in its calculation, it does not take into account the value of the goods and / or services that are created and then produce other goods or services.
For the calculation of the GDP only takes into account the production that takes place in the country, within the geographical borders of the nation, regardless of whether this production was made by national or foreign people or companies.
Although it is difficult to calculate because there are many variables in this respect, we can say that the Gross Domestic Product of a country is obtained based on the following formula:
GDP = C + I + G + X – M
In that mentioned formula these are the terms that appear:
-C is the consumption.
-I is the set of income associated with the nation in question.
-G is the public expenditure that exists in that place.
-X is the number of exports produced in the country.
-M comes to indicate what is the set of imports that are carried out in the state.
Why is GDP important to grow?
• Indicates the competitiveness of companies. If the production of companies does not grow at a higher rate, it means that it is not investing in the creation of new companies and, therefore, the generation of jobs does not grow at the desired pace.
• If GDP grows below inflation it means that wage increases will tend to be lower than the same.
• GDP growth represents higher revenues for the government through taxes. If the government wants higher revenues, it must strengthen the conditions for non-speculative investment, ie direct investment in companies; And also to strengthen the conditions for the companies that already exist to continue growing.
• Despite the importance of calculating GDP, there are many economic variables that are not part of its composition. The figures for the informal or black economy, the environmental impact (with their economic consequences) and production for own consumption (with products that do not reach the market), among other things, are not included in the GDP estimation but have relevance In the economic life of a nation.
Defenders of the environment and sustainable development criticize gross domestic product as a measure of wealth, to the extent that economic production consumes part of the stock of natural resources, and the Gross Domestic Product ignores this consumption. Some experts propose to define an indicator that takes into account the effects on the environment, which some call green GDP.
The internal product can be expressed in “gross” or “net” terms. When calculating the product, if you take into account depreciation, which is the loss of value, over time, of machinery, equipment or other type of capital good due to use, we are talking about “net” product. When depreciation is not taken into account in the calculations, we are talking about “gross” product. It is also necessary to distinguish between nominal GDP.
Nominal GDP
It is the total monetary value of all goods or services produced by a country in a given period. This GDP is usually affected by the inflation of a dynamic economy, which means that part of GDP or its growth has only been due to inflation, and that in real terms is not what is presented in a beginning.
Real GDP
It is the result of deflating nominal GDP. This is what results once the effect of nominal GDP inflation has been extracted. Under these conditions, it is possible to accurately determine the actual size of GDP or its actual growth over a reference period.

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