GDP is an important measure of a country’s economic health. It is closely watched by investors, economists and policymakers. In fact, it’s one of the few indicators that can really move markets. The advance release of the latest GDP figures is often greeted with excitement and anticipation.
GDP is calculated as the market value of all final goods and services produced within a country in a given period. This includes all activity performed by paid employees as well as unpaid labor and activities that are bartered for other goods or services. However, it does not include activities that are essentially non-market, such as household production and bartering (e.g., Kamila grows her own vegetables, brews her own beer and makes her own clothes) or black-market activities. Also excluded are transfers such as when the government sends a pension check to a retiree; these don’t represent an exchange of a good or service and therefore are not included in GDP.
Another important consideration is that GDP only includes activities that are sold at current prices; this means that comparing GDP from different periods requires adjustment for inflation. This is done by calculating “real” or “chained” GDP.
Real GDP is calculated as the market value of all the final goods and services produced in a country in a given period, minus the value of all imports. This is the most widely used measure of a country’s economy. Real GDP is a key indicator of economic health, and is used by governments and international organizations to track trends and compare economies.
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