GDP is a broad measure of the value of all final goods and services produced within a country in a given period. It is a key indicator of economic health and well-being and is watched around the world as a proxy for a nation’s standard of living. The White House and Congress use it to make budgetary decisions, central banks use it to determine interest rates and business people watch it to see how fast their local economies are growing or shrinking.
In its simplest form, it is the sum of all market and quasi-market activities (that is, those that are either purchased or sold through a market) such as selling cars, manufacturing computers, or providing consulting services. Non-market activity like a mother knitting sweaters for her children or an artisan brewing beer in his garage is also included as it contributes to the overall production of a country. This includes activities conducted by governments, households and nonprofit organisations.
The calculation of GDP is complex and the international standards set by the Organisation for Economic Co-operation and Development are followed by most countries. BEA estimates GDP at the national level, as well as for states, metropolitan areas and counties, and U.S. territories. It also publishes GDP by industry.
The most important numbers in the GDP story are C (consumption), I (investment) and G (government spending). C includes all private consumption, investment, and government expenditure. I includes the cost of materials, supplies and services that go into producing output (like steel going into making cars or flour into bread). G includes salaries paid to public servants and purchases of weapons for the military. A statistical tool called a price deflator is used to adjust GDP from current prices to constant or purchasing power parity prices.