Economy —GDP, or gross domestic product, is a measure of the value of the final goods and services produced in an economy during a period, without double-counting the intermediate goods and services used to produce them. In the United States, the Bureau of Economic Analysis describes GDP as a comprehensive measure of economic activity.
How is GDP measured?
The BEA’s National Income and Product Accounts organize the national accounts around the concepts, source data and accounting framework used to produce GDP estimates. The agency’s NIPA Handbook identifies the main expenditure-side areas in separate chapters: personal consumption expenditures, private fixed investment, changes in private inventories, net exports of goods and services, and government consumption expenditures and gross investment.
These categories describe the broad sources of spending associated with domestic production. The “final” goods and services rule is important: an input used to make a finished product is not counted again when its value is already included in the final product. That keeps the same production from appearing multiple times in the total.
Trade requires a further distinction. The BEA’s latest GDP release says imports are a subtraction in the calculation of GDP. That treatment reflects the fact that GDP is intended to measure production within the economy, rather than all spending by its residents regardless of where the goods and services were produced.
What is the difference between real and nominal GDP?
Real GDP is GDP expressed in inflation-adjusted dollars. Current-dollar GDP, commonly called nominal GDP, measures output using the dollar values of the period being reported. The BEA publishes separate real-GDP and current-dollar-GDP tables, making the distinction explicit in its data presentation.
The difference matters when measuring growth. A higher price for the same quantity of goods can raise current-dollar GDP without representing more physical output. Real GDP is therefore the series used in the BEA’s headline quarterly growth measure: when the agency reports that real GDP increased, it is reporting a change in inflation-adjusted output.
