Gross Domestic Product (GDP) is the total monetary value of products and services that a country produces within a certain time period. It is also often called the calculation of the total size of an economy. This is used in order to track the health of one country’s economy through certain factors. This is calculated by getting the totality of personal and public consumption, investments, public spending, and exportation amongst others. Despite not being a perfect measurement of nation welfare, it is able to measure some aspects of it such as determine whether an economy is experiencing growth or recession.

Essentially, GDP can be expressed in two ways. The first is something called Nominal GDP, where the totality of computation only takes in the prices of market goods or services without factoring in inflation and deflation. This means that this measurement is able to observe the increase of prices over time and subsequently, the value of the economy as well. On the other hand, Real GDP computes prices while taking in the factors of inflation or deflation rates. Due to it being able to factor in more things to think about, economists prefer this over Nominal GDP.

GDP is important because it measures the health of the economy through looking at economic production, growth, and employment. Healthy economies have higher economic production rates as there is less unemployment, meaning they are better able to maximize their workforce, resulting in higher wages for everyone. An unhealthy economy would be the opposite, with less production and consequently, more unemployment. However, GDP fails to take in account goods that were produced outside domestic borders. It also fails to include market transactions, income productions, and externalities. Finally, it also doesn’t really take note of what is being produced, and focuses so much on the amount. It doesn’t really capture the benefits of what is being produced and how people value these over time.