Gross domestic product (GDP) is a measure of the total value of final goods (i.e. manufactured products) and services (e.g. car wash, online services) produced within a country in a given period of time (typically yearly or quarterly). If a certain product is produced in the past but bought this year, it is not accounted for in the current year’s GDP (e.g. used car sold this year).
where:
- Y = GDP
- C = consumption
- I = investment
- G = government spending
- NX = net export (export - import)
GDP is not perfect
GDP is not a perfect measure of economic output due to reporting inaccuracy. For instance, certain businesses that take cash may be tempted to evade taxes by not reporting cash income to the government.