GDP makes headlines, moves the stock market, and is the benchmark used to signal when a recession or other economic downturn is near. It’s also a commonly cited statistic that’s easy to understand, especially when adjusted for population growth as a measure of per-capita GDP.
The short answer is that it represents the total market value of a country’s economy within a given period, minus its imports. That includes everything from consumer spending to business investments to government spending, but excludes foreign investment and exports.
A more technical explanation: The monetary value of all the final goods and services produced by the economy during a specified time frame, including the production of intermediate goods for use in other final products. A steel bar sold to a car manufacturer and then used in the production of cars, for example, is counted as part of GDP. Flour sold to a bakery for use in baking bread is another example.
Note that the metric only accounts for market transactions and not non-market activities such as household production, bartering, or volunteer or unpaid work. It also doesn’t account for some costs of production such as pollution or the depletion of natural resources. Finally, it’s measured at current prices rather than constant ones (a statistical adjustment called a price deflator is used to get to real GDP), so changes in the numbers have to be viewed in that context. That being said, a rising GDP generally reflects more goods and services available to consumers and a growing standard of living.