HISET Social Studies Practice

What does Gross Domestic Product (GDP) measure?

1. The total income earned by a nation's residents

2. The total value of all goods and services produced within a nation

3. The economic output of foreign companies operating in a country

4. The value of exports minus imports within a country

The correct answer is: The total value of all goods and services produced within a nation

Gross Domestic Product (GDP) measures the total value of all goods and services produced within a nation during a specific period, typically a year or a quarter. This encompasses all economic activities and reflects the overall economic performance and health of a country's economy. By quantifying the production of goods and services, GDP provides insight into the economic scale and ability of a country to generate wealth, influencing governmental policies, economic strategy, and fiscal planning. The other choices highlight important economic concepts but do not accurately define GDP. While the total income earned by a nation's residents is related to Gross National Income (GNI), it does not capture the production within the country itself. The economic output of foreign companies operating in a country pertains more to foreign direct investment (FDI) or multinational corporation activities, which are not specifically accounted for in GDP. Lastly, the calculation of the value of exports minus imports refers to the balance of trade, which is a component of a country's Gross National Product (GNP) but is not synonymous with GDP. Thus, the correct option encapsulates the comprehensive nature of economic activities measured in GDP.