Originally Published: 3/19/2006
THE GROSS DOMESTIC PRODUCT
By The Issue Wonk
The Gross Domestic Product (GDP) is the market value of final goods and services produced within a country during a given period of time, usually one year. The GDP is measured by adding the receipts (sales), wages, and salaries contributed by each sector of the economy, whether private or public. Only domestic production is included, not income from investments or possessions owned abroad. Only products that are consumed by the final user are included, not products used to produce other goods. Transfers between individuals are not included as this would mean they’d be included each time they transferred ownership.
Terms: Market Value refers to the amount of money that companies, consumers, and governments spend on goods and services. This provides a total value of output in dollars. Final Goods and Services refers to items bought by the end user, as opposed to an intermediate item which is used to produce a final product. This avoids double counting. There are 2 measures of the GDP: the nominal GDP (sometimes called the money GDP) and the real GDP (sometimes called the constant-price or the inflation-corrected GDP). The nominal GDP refers to the total amount of money spent on domestic products. The real GDP adjusts this value for the effects of inflation in order to estimate the actual quantity of goods and services making up the GDP and is the measurement most utilized for other calculations.
Wikipedia has the most concise explanation of measuring the GDP, explaining that the “expenditure method” is the most common approach:
GDP = consumption + investment + exports – imports
The GDP is used for calculations of many economic statistics, such as the Consumer Price Index (CPI), the employment report, national income reports, economic growth, and international trade. It is also the measurement against which the annual budget deficit and the total national debt are measured.
Below are the most recent real GDP annual rates, stated in billions of dollars. The Bureau of Economic Analysis, U.S. Department of Commerce1 has historical figures back to 1929 and the percent change back to 1930.
1 This number does not agree with that published by the Treasury Department. According to the CBO, its number is calculated from seasonally adjusted quarterly national income and product account data from the Bureau of Economic Analysis.
© The Issue Wonk, 2019