What does Gross Domestic Product (GDP) measure?

Gross Domestic Product (GDP) measures the market value of final goods and services produced within an economy during a specified period of time, typically expressed on an annual basis. This definition captures the total economic output of a country, reflecting the health and size of its economy. By including only final goods and services, GDP avoids double counting intermediate goods that are used to produce final output.

The timeframe in which GDP is calculated is crucial; it provides a snapshot of economic performance and growth. Changes in GDP can indicate whether an economy is expanding or contracting, making it a vital indicator for policymakers, economists, and investors.

Understanding GDP is essential because it encompasses all aspects of production within a nation’s borders, including consumption, investment, government spending, and net exports (exports minus imports). This comprehensive approach allows GDP to serve as a key gauge of economic activity and performance over time.