GDP stands for gross domestic product. GDP is a measure of the economic output of a country. It is usually defined as the total market value of goods and services produced within a given period after deducting the cost of goods and services used up in the process of production, but before allowances for depreciation. Most countries compile estimates of their GDP based on guidelines from the United Nations. The three different ways to calculate GDP should all theoretically give the same result.
GDP (E) is GDP calculated using the expenditure approach. It is the sum of expenditures on household consumption, government consumption, gross fixed capital expenditure, changes in inventories and net exports. Net exports are exports minus imports. GDP (E) is the most used measure of GDP and is considered the most accurate measure.
GDP (I) is GDP calculated using the income approach. It is derived as the sum of factor incomes, consumption of fixed capital (depreciation) and taxes less subsidies on production and imports. Factor incomes include wages, salaries and other compensation of employees plus gross operating surplus, or profit, of private companies and other entities. In theory, this approach measures the income received by all producers in the country.
GDP (P) is GDP calculated using the production approach. It is derived as the sum of gross value added for each industry, at basic prices, plus taxes less subsidies on products. Industries are sectors of the economy such as agriculture, mining and manufacturing. Basic values mean the amounts received by producers, including the value of any subsidies on products, but before any taxes on products. In theory, this approach measures the market value of all good and services produced.
Real or Nominal GDP
When comparing GDP in one time period with another, the changes are influenced by inflation. The basic measure of GDP in current prices is known as "nominal GDP." When changes are made to account for the influence of inflation, the figure is called "real GDP." It can also be referred to as "GDP at constant prices," or as a "volume estimate of GDP." Real GDP is calculated by dividing nominal GDP by a price deflator. Each of the three measures of GDP can be expressed in real or nominal terms.