GDP measures the monetary value of all the final goods and services produced within a country in a given period (usually a quarter or a year). The concept is similar to gross national product, but differs in that it includes some government expenditures that aren’t reflected in GNP, such as defense spending. GDP is usually calculated and reported quarterly by the Bureau of Economic Analysis (BEA). A country’s GDP tends to rise when output increases, but it can also increase if the price of goods and services increases or if production declines.
GDP is based on a variety of data sources, and thus can be subject to errors and biases. For example, it’s impossible to account for all consumption of goods and services, especially those that occur outside the market. The measurement also excludes all intermediate products used in the production of final goods; for example, steel sold to a car manufacturer is not included in GDP but flour sold to bakers would be.
Furthermore, GDP only accounts for activities that are provided through the market, ignoring non-market transactions, such as household production, bartering or volunteer or unpaid work. It also doesn’t take into account quality improvements or the introduction of new products, which may have a positive impact on an economy’s standard of living but are difficult to quantify. In order to combat some of these limitations, the United Nations has developed other metrics, such as the Human Development Index, which ranks countries not just by their GDP but by factors like life expectancy and literacy rate.