GDP is a measure of a nation’s economic output and activity. It is used around the world as the primary indicator of a country’s economy.
The GDP numbers are calculated based on official data from all sectors of the economy: C (consumption), G (government spending), I (investment) and X (exports). The sum of these produces the country’s total GDP for a given time period. GDP can also be compared across countries using the purchasing power parity method which adjusts for price differences.
However, many economists have criticized GDP as an overly simplistic indicator of national health, pointing to the way it focuses on material output without considering factors such as environmental impact or the value of unpaid or informal work. They suggest that other metrics, such as doughnut economics and the human development index, are more accurate measures of a nation’s welfare.
In addition, GDP is a notoriously difficult number to compare across nations because it depends on the nation’s currency and the methods of measurement for non-market output (e.g., household production and volunteer or unpaid work). Furthermore, GDP is a volatile statistic that can be revised significantly between preliminary and final releases.
But despite these concerns, the fact remains that GDP is an extremely important indicator of national health and wealth. The White House and Congress use it to plan budget and tax policies, the Federal Reserve uses it to set monetary policy, and state and local governments rely on it for decisions about jobs, expansion and investments. To maintain their standard of living, Americans need GDP to keep growing. For that to happen, GDP needs to grow faster than population growth.