GDP is the total end value of all the goods and services produced by a country in a given period. It is a measure of the size of an economy and one of the most popular indicators of economic health. It is used by governments, businesses and investors to make decisions. The White House and Congress use GDP figures when planning spending and tax policies, the Federal Reserve uses them to set monetary policy and local governments use it to decide on jobs, expansions, investments and more. Business people use it to compete with each other and to see where their countries rank in the global economy.
The data is collected and reported by each country’s statistical agency, and then aggregated into a single number that can be compared across countries. There are three ways to calculate GDP, explains financial information site Investopedia: the production approach, the income approach and the net exports (exports minus imports) approach.
It includes all market and non-market transactions that add up to a country’s total output of goods and services. This includes things like a baker’s sale of bread to a customer or his purchase of ingredients from a supplier. The only things excluded are those transactions that are outside the market, such as bartering or household production of goods for own consumption. It also excludes estimates of the black or informal economy: activities that are not recorded in the formal market and that are often illegal, such as purchasing smuggled drugs and cigarettes, untaxed cash payments, or prostitution.