Gross Domestic Product

What is Gross Domestic Product, and why is it important for national economies?
Gross Domestic Product or GDP is defined by the International Monetary Fund (IMF) as the measure of "the monetary value of final goods and services produced in a country in a given period of time" ADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "URL" : "/external/pubs/ft/fandd/basics/gdp.htm", "accessed" : { "date-parts" : [ [ "2013", "2", "25" ] ] }, "author" : [ { "family" : "Callen", "given" : "Tim" } ], "container-title" : "International Monetary Fund", "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2012" ] ] }, "title" : "Gross Domestic Product: An Economy\u2019s All", "type" : "webpage" }, "uris" : [ "/documents/?uuid=a0aed623-ea4f-44f5-a7f7-6b844dc17675" ] } ], "mendeley" : { "previouslyFormattedCitation" : "(Callen, 2012)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(Callen, 2012). Unlike the Gross National Product (GNP), the GDP is composed of market and non-market production within the borders of the country. For example, the production of a Canadian-owned company based in the United States is included in US GDP.
GDP is typically used by economists to determine whether an economy is growing or shrinking. If GDP is increasing, and inflation is not a problem, it often signifies that workers and businesses are better off. Meanwhile, falling GDP is an indicator of recession and can signal possible increase in unemployment, and the decrease in income.
In order to compare GDP from year to year, economists utilize the real GDP or the GDP adjusted for price changes, or the inflation rate ADDIN CSL_CITATION { "citationItems" : [ { "id" : "ITEM-1", "itemData" : { "author" : [ { "family" : "McEachern", "given" : "William A." } ], "edition" : "2nd ed", "id" : "ITEM-1", "issued" : { "date-parts" : [ [ "2010" ] ] }, "publisher" : "Cengage Learning", "title" : "ECON Macro", "type" : "book" }, "uris" : [ "/documents/?uuid=1fce4bfb-ceee-4b41-be60-e6d95730a455" ] } ], "mendeley" : { "previouslyFormattedCitation" : "(McEachern, 2010)" }, "properties" : { "noteIndex" : 0 }, "schema" : "https://github.com/citation-style-language/schema/raw/master/csl-citation.json" }(McEachern, 2010). Once the inflation rate is known, then economists have to compute for the actual GDP if prices were still the same as the base year. This way, countries can know that the increase in GDP is not because of the increase in the cost of production, but rather, an actual improvement in the level of production.
If real GDP is increasing, it means that businesses have to hire more workers in order to meet the increase in the demand....