One of the famous way to measure total production is GDP, gross domestic product, in which we take the value of all final goods and services (market value) produced during a period of time. This definition is almost same in every other sources, but what it really matters is understanding what we mean by "final goods", "value" and "during a period of time". By saying final goods we want to point out that intermediate goods or services are not included in calculation of GDP. For example Burger King, it is obvious that Burger King neither make its own bread nor grow its own tomatoes. Burger King purchse these goods from another manufacturers as a raw material and create and sell its own value "hamburger". So if we want to calculate GDP of an economy in which Burger King takes place, we would only consider the value of the hamburger since it is the final good including the raw materials plus value added by Burger King. We exclude the tomatoes, bread etc. which are bought by Burger King from another supplier to make its final product. By doing that we prevent double counting. The reason for us to explicitly say "a period of time" is that we usually want to describe total production to observe the increase/decrease in the growth also time restriction allows us to focus only on the production of the goods and services during that period, which is easier.
Measuring the value of total production, we simultaneously measure value of the total income. Theoratically
Expenditures=Income=Value Added +/- statistical discrepancy
Expenditure Side = Consumption+Investment+Governmental exp+Export-Import
Income= Wages+ Rent+ Profit-Interest
We use Circular Flow Model to show the economic agents participating in economic activities. For example firms use the factors of production like capital, raw materials etc. to produce goods and services (G&S). Households supply the factors of production to firms in exchange for income.
Another important thing about GDP is the difference between nominal and real GDP. The distinction between these measures are usually caused by inflation, in Nominal GDP we use current prices directly but in real GDP we take the prices of some base year, the aim is to prevent having the price change caused by inflation.
Nominal GDP is calculated by multiplying the year's price with its quantity without considering any other year. For example if there is one product which is sold at price p with quantity q during year n then our nominal GDP at year n is simply p*q, assuming that there exist only one product. Let's think that we take this year n as our base year and look at what we have after t years, so now we are looking at the prices and quantities in (n+t)th year. Say we have changes in both price and quantity so that new price level is p' and quantities sold during (n+t)th year is q'. If we want yo find the nominal GDP again for this renewed price and quantity we simply say Nominal GDP for (n+t)th year is (p'*q'). Let's think why taking nominal GDP might be problematic in case of inflation. Think that when inflation is high, prices go up, this increase affects our nominal GDP for sure, but remember that GDP is for measuring growth so can we really rely on this increase and say that GDP is increased or we growed or should we need to somehow exclude price changes, fluctuations, caused by inflation to see the real growth between years. One more thing is the definition of GDP deflator which is (nominal GDP at year n / real GDP at year n)x100. Note that for the base year we always have 100% GDP deflator since we assert base year as the year which has equal nominal and real GDP i.e. no price change exists since it is the starting year choosed for comparison.
One numerical example can be found above. In an economy we are assuming that only product x and y are produced.
