The number one way GDP is calculated is using the “expenditure approach”. This approach looks at all the spending on domestically produced G&S (C + I + Gp + X – IM) in an economy as a way to measure how much was produced in an economy. There are two reasons to use this approach to measure production: 1) it is the sale of a good or service that is reported to a government (not necessarily the production), and 2) we only know the value of a good when it is sold – because its value is determined at market. The value of a good or service is the total amount of money a customer pays for a good or service. The suggested “price” a business places on a good or service does not necessarily reflect its value, its value is what a buyer will pay for the good or service.
When economists measure the Gross Domestic Product (GDP) of a country, they are measuring the total amount of value a country produces in a specific time period. If that time period is a year, we call the specific year being measured the “current” year.
This video is made for 1st year college students or AP/IB Economics students. It focuses on foundational economic concepts.
