Gross Domestic Product (GDP)

Total annual output of the U.S. economy, measured by its final purchase price.

GDP is divided into four categories, according to the final purchaser:

GDP =Consumer Spending
+Business and Residential Investment
+Government Spending
-Trade Deficit.

(See the interactive GDP Diagram.)

The gross domestic product includes enough sub-components that just looking at trends in the bottom line GDP number can give you a misleading idea of what the economy is actually doing. One example: if a retailer successfully sells a product, the sale will count toward "consumer spending" at its retail price; if the retailer fails and the product bloats its inventory, it will count toward "business investment" at its wholesale price (i.e. the price the retailer paid for it). Later, when the retailer works off the bloat, the decline in inventory will contribute a negative number toward business investment, officially lowering GDP. In other words, the GDP calculation can make the start of a recession look better, and the recovery stage look weaker, than they really are.

GDP data is available from the Bureau of Economic Analysis (www.bea.gov).

Also see the definition of Gross National Product.

home  |  glossary  |  calculator  |  about us  |  books