Gross Domestic Product (GDP)

Times Square scene

Times Square scene

Gross Domestic Product (GDP) is the dollar value of what the national economy produced during a certain period. You can think of it as the report card for the United States. The GDP includes the following items: 

  1. How much you, your family, and other citizens spend on food, clothing, services, and other items.

  2. The money businesses spend to buy equipment for their factories, the money families spend to buy homes, and the change in certain items on the balance sheets of companies.

  3. The money spent by the government for defense, roads, schools, and other items.

  4. The amount of goods and services the United States sells to other countries.

  5. Of all the items listed above, the biggest contributor to the GDP is item 1 – how much you, your family, and other citizens spend on food, clothing, services, and other items.

 

How the GDP is Published
You will rarely see the actual dollar amount of GDP printed anywhere. What you are likely to see is the percentage of growth in GDP. The growth figure is watched very carefully to check the health of the economy. Since 1930, the real GDP growth has ranged from about negative 13% in (in 1932) to about 19% (in 1942.) Over the 10-year period ending in December 2015, the real GDP growth rate ranged from negative 2.8% (reflecting the after-effects of the 2008 financial crisis) to 2.7%.

A fast-growing GDP can lead to inflation, because this probably means that too many consumers are buying goods and services. (When you have more people with more money trying to buy goods and services, prices tend to go up). When the GDP does not grow but instead declines, this is known as a recession. As mentioned earlier, one way the government tries to cure too much inflation or a recession by changing the discount rate to the amount of borrowing and spending. This process is described later in this section. You can find an Excel spreadsheet of GDP figures published by the U.S. Bureau of Economic Analysis.