GDP measures the monetary value of all the goods and services produced in a country over a specific period of time. It’s calculated by a country’s national statistical agency, following the international standard set by the OECD, and is reported monthly or quarterly (the most recent figure is usually released a month after the quarter ends).
The components of GDP are consumption, investment, government spending and net exports. Each contributes to the growth of GDP in different ways, and their contributions to GDP are influenced by the speed and stability of their growth. For example, mining investment has a relatively small share of the economy but can make large contributions to GDP growth as resource prices fluctuate.
Consumer spending is the largest component of GDP; increasing consumption is viewed as a sign of a healthy economy. Investment contributes to GDP when businesses spend money on new or replacement goods and services. Government spending includes salaries of public servants, infrastructure spending and defence expenditure. Finally, net exports are the difference between a country’s imports and its exports.
Economists and policymakers use GDP to assess the health of an economy, understand economic cycles and predict future growth. For example, the White House and Congress rely on GDP numbers to plan budgets and taxation; the Federal Reserve uses them when setting monetary policy. Business people also use GDP statistics when making decisions about jobs, expansion and investments.