GDP measures the value of all final goods and services produced within a country in a given year. The measure is sometimes used as a barometer of economic health, with low GDP growth often signaling slow or even negative economic growth.
Real GDP is adjusted to remove the effects of inflation over time, so that growth rates between different years can be compared. The measure is also commonly reported in terms of percentage change from the previous quarter or year, rather than absolute dollar values.
The most obvious limitation of GDP is that it fails to take into account certain phenomena impacting citizens’ well-being, such as environmental damage, depletion of nonrenewable resources or reduction in leisure time due to traffic jams (although traffic jams do increase GDP through higher consumption of gasoline). Other limitations include the fact that GDP rewards behaviors that are detrimental to the environment.
How Do You Calculate GDP?
The data that goes into calculating GDP is collected and published by a number of different organizations. In the United States, the Federal Reserve publishes GDP data for states, metropolitan areas and counties. BEA, a division of the U.S. Department of Commerce, also publishes a thorough analysis document with each GDP release that provides useful insight into trends and figures.
Other than the Fed, the most comprehensive source of GDP data is from a country’s statistical agency. The International Monetary Fund and the Organization for Economic Cooperation and Development (OECD) also collect and publish GDP data.