Gross Domestic Product: Counting a Nation's Output

Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period, usually a year or a quarter. Counting only final goods avoids double counting: the steel in a car is included once, in the car's price, not again on its own. GDP can be measured three ways that should give the same total: by adding up spending (consumption, investment, government purchases and net exports), by adding up incomes such as wages and profits, or by adding the value added at each stage of production.

The modern system grew out of the 1930s, when governments facing the Great Depression realized they had no reliable measure of how badly output had fallen. Because it is standardized, GDP lets analysts compare countries and track recessions and booms over time. Its usefulness, however, depends on remembering that it measures production, not happiness or fairness.