The Gross Domestic Product, or GDP, is probably one of those acronyms that you’ve heard a lot but don’t really understand unless you’ve taken an economics course. According to Investopedia, GDP is “the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.” The figure, which is released every four months by the Bureau of Economic Analysis, indicates how healthy the economy is and is calculated by using the following equation:
GDP = C + I + G + (Ex – Im)
This equation tells us that GDP is figured by looking at:
C = Total consumer spending
I = Total investment (or spending) on goods and services by businesses
G = Total government spending at local, state, and federal levels
Ex = Total exports (what we sell to other countries)
Im = Total imports (what we buy from other countries)
Sometimes you may hear someone distinguish between nominal GDP and real GDP. Nominal GDP does not account for inflation, but real GDP does. The latter gives us a more accurate view of the health of the economy over time because it accounts for price increases.
If you’re interested in learning more about GDP and what it tells us about our economy, listen to the St. Louis Federal Reserve’s podcast or check out the book GDP: A Brief but Affectionate History by Diane Coyle, available in Andersen Library’s Main Collection (3rd floor): HC79.I5 C725 2014.