GDP

GDP (gross domestic product) is a tool for measuring a country's economy. GDP is considered as one of indicators of a country's standard of living.

How to calculate it

GDP is calculated by adding up the consumer spending, the investment spending, the government spending and the value of balance of trade (difference between what is exported out of the country and imported in it).

How to use it

If we want to compare countries of the world together, GDP is a good way to know which ones have the biggest economies: for instance, the United States of America, China and Japan all have a very high GDP.

However, if we want to know how well-off the average citizen of a country is (compared to average citizens of other countries), we can use the GDP "per capita" (which means "per head" in Latin: it is the GDP divided by the number of inhabitants of a country. For example, the United States and China both have a very high GDP, but since China's population is three times bigger, in China the average citizen has less economic power than in the United States.