GDP is a number that tells us about the size of an economy. It is one of the most widely tracked pieces of economic data and is watched by economists, analysts, investors, and policymakers. The release of new GDP figures is usually big news and can move markets.
GDP includes all the goods and services produced in a country during a certain period of time. This includes everything from the value of your new washing machine to the haircut you got at your hairdresser. It also includes all the work done by professionals like doctors and lawyers. However, not all work is included in GDP. Only the work that produces final goods and services counts. If you buy a hamburger from McDonald’s but they had to use buns, ground beef, and ketchup to make it, that doesn’t count as part of GDP because those are intermediate goods.
The GDP calculation includes private consumption, government spending, investment, and net exports. The formula for calculating GDP is C + G + I + NX. C represents the value of final goods and services, G represents government spending, I represents investment, and NX represents the value of a country’s exports minus its imports.
While the GDP is a very important number that can affect the stock market, it doesn’t always tell the full story. For example, if traffic jams increase GDP because people spend more time in their cars, then the well-being of citizens might be lessened even though GDP is higher. This is because GDP relies on recorded transactions and official data and does not include informal or black/grey market activity.