What Is Gross Domestic Product (GDP)?

Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.

KEY TAKEAWAYS

Gross domestic product (GDP) is the monetary value of all finished goods and services made within a country during a specific period.

GDP provides an economic snapshot of a country, used to estimate the size of an economy and growth rate.

GDP can be calculated in three ways, using expenditures, production, or incomes. It can be adjusted for inflation and population to provide deeper insights.

Though it has limitations, GDP is a key tool to guide policy-makers, investors, and businesses in strategic decision-making.

GDP Growth Rate

The GDP growth rate compares the year-over-year (or quarterly) change in a country’s economic output to measure how fast an economy is growing. Usually expressed as a percentage rate, this measure is popular for economic policy-makers because GDP growth is thought to be closely connected to key policy targets such as inflation and unemployment rates.

If GDP growth rates accelerate, it may be a signal that the economy is “overheating” and the central bank may seek to raise interest rates. Conversely, central banks see a shrinking (or negative) GDP growth rate (i.e., a recession) as a signal that rates should be lowered and that stimulus may be necessary.

What Is a Simple Definition of GDP?

Gross domestic product (GDP) is a measurement that seeks to capture a country’s economic output. Countries with larger GDPs will have a greater amount of goods and services generated within them, and will generally have a higher standard of living. For this reason, many citizens and political leaders see GDP growth as an important measure of national success, often referring to “GDP growth” and “economic growth” interchangeably. Due to various limitations, however, many economists have argued that GDP should not be used as a proxy for overall economic success, much less the success of a society more generally

Is a High GDP Good?

Most people perceive a higher GDP to be a good thing because it is associated with greater economic opportunities and an improved standard of material well-being. It is possible, however, for a country to have a high GDP and still be an unattractive place to live, so it is important to also consider other measurements. For example, a country could have a high GDP and a low per-capita GDP, suggesting that significant wealth exists but is concentrated in the hands of very few people. One way to address this is to look at GDP alongside another measure of economic development, such as the Human Development Index (HDI).