GDP is a measure of the value of all the goods and services produced in a country. It includes all private and public consumption, investment and government spending (exports minus imports). The calculation of GDP is complex, as it is necessary to determine the value of products that are not yet sold or owned. For example, steel that is sold to a car manufacturer counts as an intermediate good, but when the car is eventually assembled and sold, it counts as a final good in GDP. Similarly, flour that is used to bake bread counts as an intermediate good, but when the bread is then eaten by people, it counts as a final good in the GDP.
In addition, it is important to distinguish between “real” and “nominal” GDP. Real GDP takes into account inflation, which helps to ensure that a growth in output is actually a real increase in prosperity. Generally, a country’s nominal GDP is converted to real GDP using a price deflator.
The data behind GDP comes from a variety of sources, including government agencies and businesses. The St. Louis Fed compiles and maintains the FRED database, which contains more than 800,000 economic data series.
Many governments, economists and financial analysts closely monitor changes in GDP to assess the health of a nation’s economy. This information influences decisions about public policy, taxation and interest rates. In particular, central banks track GDP to help them set monetary policy that will be most beneficial to their countries’ citizens.