Gross domestic product

GDP totals the value of final goods and services produced within an economy’s borders over a period, usually a quarter or a year. It includes output for sale as well as some non-market services provided by government, such as public education. The territorial definition matters: production inside a country is counted there even if a foreign-owned company carries it out. Intermediate inputs are not counted separately as final output, which prevents the same production from being added multiple times.

National accounts estimate GDP in three conceptually equivalent ways. The production approach adds value added across industries: the value of output minus the value of intermediate inputs. The expenditure approach totals spending on final output; its familiar identity is GDP = C + I + G + (X − M), where C is personal consumption, I is investment, G is government purchases, X is exports, and M is imports. Imports are subtracted because some household, business, or government spending is on goods produced abroad. The income approach totals incomes generated by production, including compensation and business income. Estimates from the approaches can differ in practice because they draw on different data and are revised as more information becomes available.

Nominal GDP values output at the prices prevailing in the period being measured. If prices rise, nominal GDP can increase even when the volume of production does not. Real GDP adjusts for price changes, allowing comparisons of output over time that are less affected by inflation. GDP per capita divides GDP by the population and is often used as a rough average-output indicator; it is not the income received by each person and can conceal differences in how resources and income are distributed.

Governments, businesses, and researchers use GDP and its growth rate to assess the scale and direction of economic activity. It is informative, but it is not a complete measure of prosperity or quality of life. GDP does not show who receives the income associated with production, and it omits or incompletely captures activities such as unpaid household and volunteer work when they have no recorded market value. Nor does a rising total by itself reveal changes in leisure, environmental conditions, health, or other dimensions of well-being. For these questions, GDP is best considered alongside measures of distribution, social outcomes, and environmental conditions.