Gross domestic product
Family IX · Macro
Not to be confused with inflation rate, consumer price index, non farm payrolls.
Gross domestic product (GDP) is the standard headline measure of an economy's output. It counts production that takes place inside a country's geographic borders, regardless of who owns the producing assets. Figures are usually published quarterly and revised as more complete data arrive.
What GDP counts
GDP measures final output, so intermediate goods are excluded to avoid double counting. Three equivalent approaches exist:
- Expenditure approach: consumption + investment + government spending + (exports − imports).
- Income approach: compensation of employees + gross operating surplus + taxes less subsidies on production.
- Production approach: gross value added summed across industries.
Nominal GDP uses current prices; real GDP adjusts for inflation using a base year or chain-weighted index. The GDP deflator is the ratio of nominal to real GDP.
Worked example
A simplified economy in one year:
If nominal GDP is 990 and real GDP is 950, the deflator is 990 ÷ 950 × 100 ≈ 104.2, implying roughly 4.2% price growth over the base period.
Uses and limitations
GDP is used to gauge growth, compare economies and guide monetary and fiscal policy. It omits unpaid work, informal activity and environmental costs, and says nothing about income distribution. Revisions can be substantial, and release schedules, revision practices and seasonal-adjustment methods vary by national statistics agency.
Often confused with
- inflation rate
- The inflation rate is the percentage change in a price index, typically a consumer price index, over a specified period, usually a year, measuring how much the general level of prices has risen or fallen.
- consumer price index
- The Consumer Price Index is a statistical measure of the average change over time in the prices paid by urban households for a fixed basket of goods and services, used to gauge inflation.
- non farm payrolls
- Non farm payrolls is the monthly change in the number of paid employees in the United States excluding farm workers, private household employees, and non-profit organisation employees, published by the Bureau of Labor Statistics.