Intro
The economy is certainly on everyone’s minds, and even more so in a presidential election year. We routinely hear about such economic indicators as interest rates, inflation, unemployment and GDP. GDP is an abbreviation for “Gross Domestic Product”. This certainly sounds important, but what is it?
GDP Defined
Gross Domestic Product (GDP) has become a sort of barometer to gauge the overall health of our economy. Specifically, “GDP measures the monetary value of final goods and services-that is, those that are bought by the final user-produced in a country in a given period of time (say a quarter or a year)” (International Monetary Fund, imf.org). Essentially it is the total output produced within the borders of a certain country and for a certain period of time-monthly, quarterly, yearly.
The GDP is comprised not only of all goods and services produced, but also includes some other contributors like defense spending and educational services, such as those provided by the U.S. government. Together, these products produced are calculated as our GDP. Currently the United State’' GDP is $28.63 trillion as of June 30,2024. Sounds like an impressive number, right? It certainly is, but not everything is captured in this calculation. Think of unpaid work (parenting, volunteering) and various black-market activities. None of these are included in GDP, so we can imagine that the ‘actual’ amount is much higher.
Ford vs. Ferrari or GDP and GNP
To further complicate matters, there is another calculation often used known as the Gross National Product, or GNP. This figure is exclusive to all goods and services produced as output by residents of the country only in a given financial year. For example, let’s say Ferrari decides to open a new auto factory in the United States. Given that Ferrari is an Italian-owned company, the value of all vehicles produced by this factory would not be included in the United States GDP, but rather captured in the Italian GNP. Given the complexity of the international economy, this helps to keep track of what each country is producing even when production is located elsewhere.
United States Gross Domestic Product: 2020-2023 (imf.org)
From a global perspective, an indicator known as “Gross National Income”, or GNI, is gaining favor in international statistics. In order to keep things simple, just remember that, generally speaking, GDP is the key measure to be aware of in the US economy for the time being. Up next we will take a look at the Consumer Price Index and how this important metric is used to measure economic health and make policy. 
Fun Fact: GNP was used as a primary means of monitoring production in the United States until 1991, when it was replaced by GDP (bea.gov). In the United States it is widely believed that GDP is a better overall representation of how a country is doing, due to its focus on location and not nationality, and corresponds more closely with other preferred data points as employment and industrial production (Investopedia.com).
Until Next Time