What is GDP?
Gross domestic product or GDP is a measure of the size and health of a country’s economy over a specific period of time. It can be used to compare the size of different economies at various points in time.
In the UK, it is calculated each quarter using data from the Office of National Statistics (ONS). There are three ways to measure GDP:
- Total value of goods and services produced (output)
- Total income
- Total expenditure
The figure will differ depending on the method of measurement as there is never enough data to build a complete picture of the economy. However, total expenditure is the most commonly used measure of GDP. It is the summation of household spending (around two thirds of GDP), investment, net exports and government spending.
Therefore, GDP can rise when people are spending more and businesses may be expanding. This signifies economic growth and is essentially a key measure of the overall strength of the economy.
GDP does not cover all economic activity, however. Unpaid work, such as volunteering or caring for relatives, and black-market activities are not included because they are difficult to measure and value.