I. Definition of Gross Domestic Product (GDP)
American Definition (Mankiw, Principles of Economics):
The Gross Domestic Product (GDP) is the total market value of final goods and
services produced within the terrestrial boundaries of an economy over a specified
time period, usually a year. In its simplest terms, GDP is the value of goods and
services made in the Philippines.
Nominal Gross Domestic Product is GDP evaluated at current market prices.
Therefore, nominal GDP will include all of the changes in market prices that have
occurred during the current year due to inflation or deflation.
Gross Domestic Product refers to the value of all goods and services produced
domestically; the sum of gross value added of all resident institutional units engaged
in production (plus any taxes, and minus any subsidies, on products not included in
the values of their outputs).
II. Gross Domestic Product Equation
GDP (denoted as Y) is divided into four components: consumption (C),
investment (I), government purchases (G), and net exports (NX) (NX = Imports –
Y = C + I + G + NX.
This equation is an identity—an equation that must be true because of how the
variables in the equation are defined. In this case, because each dollar of expenditure
included in GDP is placed into one of the four components of GDP, the total of the