GDP measures the total amount of goods and services produced in a country’s economy during a given period, usually a year or quarter. It is the broadest measure of economic activity and is used by economists, policymakers and investors to judge whether an economy is growing or shrinking, if it needs a boost or is overheating. It is calculated using either the expenditure, income or production approach to national accounts and it is adjusted for inflation so that we can compare real GDP growth from one year to another.
A nation’s GDP is the single best indicator of how well it is doing economically and advances in its metric are closely watched by economists, investors and policymakers. The advance release of a nation’s quarterly GDP by the Bureau of Economic Analysis (BEA) can move markets, but there are several important things to keep in mind about GDP as an economic measurement.
GDP excludes some activities that take place outside the formal market, like under-the-table employment, underground market activity and unremunerated volunteer work, which are common in many nations. It also fails to capture phenomena that impact citizens’ well-being, such as traffic jams that might make them late for work or air pollution that makes their commute more difficult. Finally, because it is measured in terms of money paid for goods and services, it doesn’t tell us anything about the quality of those goods or services. That is why a number of alternative measures have been developed.
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