GDP is one of the most important economic indicators and is widely followed by economists, investors, policymakers, and others. It is used to gauge the health of an economy and determine whether a country needs to boost growth or slow down to ward off inflation. When growth is strong, it usually means that workers and businesses are more well off than when growth is weak or negative.
To measure GDP, statisticians calculate the value of all final goods and services sold within a country during a certain period. This figure is then divided by the country’s population to give a per-capita measure of the nation’s economic performance. GDP is often measured at current, or nominal, prices rather than constant, or real, prices; to adjust for price changes and make comparisons between periods, a statistical tool known as the price deflator is used. Real GDP is usually seen as a more accurate measurement of economic productivity since it takes into account quality improvements and new products, which may not be reflected in the prices of older goods that remain on the market.
However, critics of GDP point out that it fails to consider certain phenomena impacting citizens’ well-being. For example, increasing GDP through the construction of roads might cause traffic jams and pollution that reduces people’s quality of life. In addition, GDP does not take into consideration non-market transactions or unrecorded activities. These include under-the-table employment, black or grey markets, unrecorded volunteer work and household production of goods not for sale.