GDP is the monetary value of all the final goods and services produced in a country in a given period, usually a quarter or a year. The metric is used around the world to gauge a nation’s economic health and strength. BEA provides both “real” and “nominal” GDP estimates, with the latter reflecting market prices and the former reflecting constant-dollar (chained) prices.
Real GDP growth is adjusted for inflation so that different periods can be compared. This makes it easier to see whether an economy is growing because more is being produced or simply because prices are rising. GDP numbers are usually reported in current dollars but they can also be reported in purchasing power parity dollars, which converts a currency’s price to what it would cost in another country.
One limitation of GDP is that it relies on recorded transactions and official data, and does not account for the value of informal or unrecorded economic activity. This includes activities such as under-the-table work, black-market activity or unremunerated volunteer labor. It also ignores the value of home production, such as cooking, cleaning or sewing for family use.
Another limitation is that GDP does not measure the sustainability of growth. If a nation’s GDP rises but its people are still struggling to make ends meet, the quality of life will not have improved. Furthermore, GDP does not take into account externalities such as environmental degradation or income inequality. Finally, GDP does not reflect the fact that debt service is an operating expense, which can distort a nation’s economic performance.
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