Gross Domestic Product: Definition and Components

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Gross Domestic Product: Items Excluded from National Production

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
Your next lesson will play in 10 seconds
  • 0:44 Definition of GDP
  • 2:04 Consumption
  • 2:38 Government Spending
  • 2:56 Investment
  • 3:18 Exports
  • 3:36 Imports
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Speed Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Jon Nash

Jon has taught Economics and Finance and has an MBA in Finance

Learn how economists measure the total production of an economy using gross domestic product (GDP). This lesson also outlines the components that make up a GDP. How do we calculate the economic value of a nation?

Gross Domestic Product

One of the main ideas that economist John Maynard Keynes introduced is the idea that the number one driver of the economy is demand. If we can measure the economy in terms of what everyone spends, then we can estimate the level of production in our economy. We measure the economy using GDP.

GDP stands for gross domestic product. It's the official measure of the total output of goods and services in the economy. The definition of GDP is as follows: it is the total market value of all final goods and services produced during a given time period within a nation's domestic borders.

The word 'domestic' (in 'gross domestic product') means that we're only counting things that are produced within our domestic borders, whether they are produced by Americans or by foreigners. It doesn't matter. Nothing that is produced outside of our domestic borders gets counted in the GDP.

Components of GDP

So, let's talk about the components of GDP, which come directly from the formula for GDP. The formula is as follows: GDP = C + I + G + (X - M). Another way to say this is that gross domestic product = consumption + investment + government spending + (exports - imports). Sometimes GDP is stated this way: gross domestic product = consumption + investment + government spending + net exports.

Now, consumption, which represents all of the purchases of goods and services made by households, accounts for the largest share of GDP, and it has averaged between 65% and 70% for many decades. Examples of consumption include things that consumers buy every day - things like cars, computers, rent, food, utilities and even clothes and other consumer products.

To unlock this lesson you must be a Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use

Become a member and start learning now.
Become a Member  Back
What teachers are saying about
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account