Gross Domestic Product (GDP) is the market value of all final goods and services newly produced within a county during a specified period of time, typically one year. In this short definition, there are five unique elements which together make up the concept of GDP. When talking about GDP, one must make sure to include all five components. Because each part is necessary and crucial to the definition, let’s go through each one individually. 1. GDP is the market value The word “value” is important in the definition of GDP. Here, “value” means “dollar amount.” When we use a good’s market value in the calculation of GDP, we put everything in dollar terms. When every product is in the same unit of measurement, then we can just add them all together. This gives us the total (dollar) value of production in our economy. 2. of all final goods and services To avoid double-counting, we only use the market value of the final product that is sold to consumers. This requires understanding the difference between a “final good” and an “intermediate good.” A final good or service is the product purchased by a final user. An intermediate good or service is used as an input to create a final good or service (for example, a tire is an intermediate good used to produce a car). We cannot directly include the value of intermediate goods in the amount of GDP because their value is already included in the price of the final product. 3. Newly produced GDP only includes the market value of new products that are manufactured or created. A firm’s leftover products (called “inventory”) are included in GDP in the year they were produced—not necessarily the year they were sold. 4. within a country To be considered gross “domestic” product, the production of the new goods and services must take place within the physical boundaries of a nation. If the production occurs outside of a country’s borders, then it is not GDP.