What is GDP?

GDP in plain language

Gross Domestic Product (GDP) is a measure of the economic activity of a State. It measures the final production (all final goods and services produced and traded) in a specific time period, in general the calendar year, by all economic actors. It was created by the economist Simon Kuznets for a US Congress report in 1934 as a way to measure national income (Kuznets, 1934).

Policy makers have used GDP as a way to identify potential areas for legislation and regulation, and to measure the feedback in the introduction of new policies. GDP is aggregated vertically from individual transactions.

GDP is calculated by adding together total consumer spending, total government spending, total business spending, and the value of net exports. GDP is considered one of the leader indicators of the health of a nation’s economy.

After the Bretton Woods conference in 1944 GDP became the main instrument to measure not only countries’ economies but also the main performance indicators to be used for all welfare, innovation and overall policy measurement and development.

Over the years it has been evolved, for example, in 1993 to include banking and finance.

With the rise of the digital, data-driven, and ‘gig’ economies there is arguably a need for GDP to continue to evolve to further align with today’s modern economic realities and we’ll cover this in the next article.

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