The definition of the gross domestic product is the value of all the finished goods and services produced by a country during a specific period of time.
An example of the gross domestic product is the total of all the consumer, business and government spending in the United States during twelve months plus the value of the exports during that twelve month period.
The total production and consumption of goods
and services in a country. GDP measures production by totaling the labor,
capital, and tax costs of producing the output. To calculate consumption, GDP
adds up expenditures by households, businesses, government, and net foreign
purchases. GDP is a closely watched economic indicator that provides a wide and
encompassing picture of economic activity. In the United States, the Department
of Commerce assembles GDP data in its Bureau of Economic Analysis. The report
is produced one month after the quarter’s end and
then is updated a month later followed by another update a month later.
GDP is closely watched because it is a
very comprehensive measure of economic activity. It also measures inventories,
which is an important indicator of economic activity. If inventories are
growing strongly, then that suggests a slowing economy because products are
sitting on the shelf and not being sold. However, GDP is problematic because
the date is not as timely as monthly or weekly indicators. There also is not
regional breakout for GDP.
The data also includes the GDP price
deflator, which is used to convert output measured at current prices into
constant-dollar GDP. This data is used to define business cycle peaks and
troughs. Total GDP growth of between 2.0 percent and 2.5 percent is generally
considered to be optimal when the economy is at full employment (unemployment
between 5.5 percent and 6.0 percent). Higher growth than this leads to
accelerating inflation, while lower growth indicates a weak economy.