Gross domestic product

Gross domestic product is the total market value of the goods and services an economy produces within a period, usually a quarter or a year. It is the standard measure of an economy's size. Only final output is counted, so a component sold to a manufacturer is not tallied twice — once on its own and again inside the finished product. The same total can be reached by adding up output, incomes or spending, and it can be quoted at current prices or adjusted for price changes.

A worked example

Suppose a hypothetical economy makes only bread and chairs. In one period it produces 100 loaves at 2 apiece and 50 chairs at 10 apiece: GDP is 200 plus 500, or 700. If prices hold steady and output rises to 110 loaves and 55 chairs, GDP becomes 220 plus 550, or 770 — growth of 70 on a base of 700, which is 10 per cent.

GDP measures output, not wellbeing and not distribution. It says nothing about how income is shared, counts no unpaid work, and ignores leisure and environmental cost. A rising total is compatible with many households becoming worse off, and a falling one with some becoming better off.