What is gross domestic product, and why is it important?

GDP, or gross domestic product, measures the value of goods and services produced by a nation’s economy less the value of goods and services used in production. In essence, GDP is a broad measure of the nation’s overall economic activity and serves as a gauge of the country’s economic health. Countries with the largest GDP are the United States, China, Japan, Germany, and the United Kingdom. GDP generally provides economic information on a quarterly basis and is calculated for most of the world’s countries, allowing for comparisons among various economies. Important information that can be gleaned from GDP includes:

• A measure of the prices paid for goods and services purchased by, or on behalf of, consumers (personal consumption expenditures), including durable goods (such as cars and appliances), nondurable goods (food and clothing), and services (transportation, education, and banking)
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• Personal (pre-tax) and disposable (after-tax) income and personal savings