In economics, what does GDP measure?
Answer
The value of final goods and services produced domestically
GDP measures the value of final goods and services produced within a country’s borders during a specified period.
Gross domestic product is a flow measure, usually reported for a quarter or a year. It counts final output to avoid double-counting intermediate inputs: the value of bread sold to a customer is included, while flour used to make that bread is not counted separately in final GDP. Production by foreign-owned firms inside a country is included, while domestic firms’ overseas production belongs to another country’s GDP.
GDP can be calculated through expenditure, income, or production approaches. The expenditure approach is commonly expressed as consumption plus investment plus government spending plus net exports. Nominal GDP uses current prices; real GDP removes the effect of price changes to help compare output over time.
GDP is not a complete measure of welfare. It does not directly capture unpaid household work, leisure, inequality, environmental damage, or the quality of many goods and services.