One of the most widely used indicators of economic growth and health, gross domestic product (GDP) measures the value of all final goods and services produced in a country. It is calculated as a sum of consumer spending (C), investment in tangible assets (I), government expenditures on goods and services (G) and net exports (X – M).
The monetary measurement of GDP takes current prices into account, allowing comparisons to be made between periods. However, these figures can be inflated by inflation, so economists adjust them using a method called price deflator to arrive at real GDP. This allows us to see whether an economy is growing or shrinking because more is being produced, or just because prices have risen.
When it comes to measuring the quality of a nation’s economy, GDP has its critics. It fails to consider the environmental impact of producing goods, for example, and it can ignore income disparity between groups within a nation. It also neglects the role of non-monetary benefits such as improved quality of goods or new products.
The United States Bureau of Economic Analysis (BEA) publishes three estimates of GDP each month – an advance estimate, a second estimate and a third estimate. The second and third estimates each incorporate information from sources that weren’t available at the time of the first estimate, improving accuracy. The BEA also produces regional and industry breakdowns of GDP. Many people rely on GDP statistics when making decisions, such as buying a home or car or investing in business expansion.