Gross Domestic Product

Feb. 10, 2003

EC 111‑004

Gross Domestic Product (GDP) is the market value of all final goods and services produced within a country in a given period of time. GDP measures a country’s economic activity regardless of who owns the productive assets in that country. GDP is thought to be the best single measure of a society’s economic well‑being, and therefore is the most closely watched economic statistic. GDP may be calculated in three ways: (1) by adding up the value of all goods and services produced, (2) by adding up the expenditure on goods and services at the time of sale, or (3) by adding up producers’ incomes from the sale of goods or services. However, it is difficult to measure GDP precisely, partly because every country has an unofficial economy, often called a black economy (market), that consists of transactions not reported to government. Many economists use the GDP to measure the standard of living in a country. They divide a country’s GDP by its population to arrive at GDP per head. If GDP grows at a higher rate than the population, standards of living are said to be rising. If the population is growing at a higher rate than GDP, living standards are said to be falling. GDP per head does not take the cost of living into account. The gross domestic product of the United States in the fourth quarter of 2003 increased at an annual rate of four percent. The U.S. Department of Commerce and the Bureau of Economic Analysis stated that "the major contributors to the increase in real GDP in the fourth quarter were personal consumption expenditures (PCE), exports, equipment and software, inventory investment, and residential fixed investment" ( GDP’s of different countries may be compared by converting their value in national currency according to either exchange rates prevailing on international currency markets, or the purchasing power of each currency relative to the selected standard, usually the United States dollar.