A country’s gross domestic product (or GDP) is the market value of all final goods and services produced within that nation in a year. People from business owners to lawmakers use this measure when assessing the health of their economies and making decisions.
GDP is an internationally accepted indicator of economic size. Because the definition is the same everywhere, it allows for comparisons of nations’ economies. GDP is usually reported at current prices, or nominal GDP. To get a more accurate picture of economic health over time, we need to look at inflation-adjusted numbers, called real GDP or chained GDP. This accounts for price changes and makes it easier to compare periods of time.
There are three ways to calculate GDP, all of which should theoretically give the same result: the expenditure approach, the income approach and the gross national product (GNP) approach. The Bureau of Economic Analysis (BEA) at the U.S. Department of Commerce compiles the data used to report GDP. Its FRED database contains hundreds of thousands of economic series going back to 1929.
The expenditure approach measures GDP by summing the expenditures on goods and services for final consumption, investment and government spending. It also includes intermediate consumption, which consists of the cost of materials and supplies for production of final goods and services. Finally, it adds up the country’s exports and imports to arrive at net GDP. This is the most widely used method for calculating GDP. However, it does not take into account things that may be deemed important to a country’s citizens beyond their monetary value. For example, traffic jams might increase GDP by increasing gasoline consumption, but they would not be considered a positive impact on citizens’ well-being.