GDP is a measure of market activity that can be compared over time and across countries. It’s the most important indicator of economic health and is used to gauge whether a country’s economy is growing or not. The more it grows, the healthier an economy is.
GDP measures all the final goods and services produced in a country’s economy over a certain period of time. It excludes expenditure on intermediate goods and services (goods and services that are purchased by businesses for their own use or resold) as well as investment in fixed assets such as machinery and computers.
It also does not count the value of activities that do not make a financial contribution, such as volunteering or taking care of children. This is because it can be difficult to measure or value these activities. It also does not take into account the depletion of natural resources or environmental damage caused by increased production.
The largest component of GDP is consumption, which accounts for around 59 percent of the total. This includes spending on things like food, clothing and petrol. The other main component of GDP is gross investment, which is the money that companies and individuals spend on new equipment or buildings. It does not include spending on existing plants or assets, as this would be double-counting the same investment – for example buying shares in a company would count as an investment by the buyer and a purchase by the company – but it does include investments in research and development, which is vital for future growth.