GDP measures the monetary value of all final goods and services produced in a country during a specified period of time (such as a quarter or a year). It includes all market and some non-market production, such as defense or education services provided by government. GDP is commonly measured on a per-capita basis, meaning that each person’s share of GDP is proportionate to his or her share of the population. GDP is a very important statistic for many reasons. It is calculated frequently, widely, and consistently; it is used to evaluate the economic performance of governments, businesses, and individuals; and it is often compared between countries in order to understand their relative wealth.
The primary reason why GDP is so important is that it provides a snapshot of the overall economic activity in a country. It is a good measure of the size of an economy and can help determine whether an economy is growing, contracting, or stagnating. It is also used to make long-term economic plans and goals. The White House and Congress use it to plan spending, the Federal Reserve uses it to set monetary policy, and business people use it when making decisions about jobs, expansion, and investments.
However, the reliance on recorded transactions and official data means that GDP underestimates the value of some economic activity. It does not account for under-the-table activities such as black-market transactions, or unrecorded informal economic activity such as leisure time and household production. It also does not include the value of new products and quality improvements.