The Gross Domestic Product or GDP is a measure of all of the services and goods produced in a country over a specific period, classically a year. This measure considers the market value of goods and services to arrive at a number which is used to judge the growth rate of the economy and the overall economic health of the nation concerned. As an economic measure, the GDP can be a very useful yardstick, but it has some serious flaws which have led some people to propose the use of alternate measures of economic and social well being.
When a GDP is calculated, it includes all private and government spending, goods and services produced, and exports. It is adjusted for imports and inflation to arrive at a number which is believed to accurately reflect the sum total of the nation's goods and services. The GDP can be expressed as a bulk number, but it is more commonly converted into a per capita figure, creating a number which reflects the average per citizen. High per capita GDPs are associated with overall improvements in standards of living.
One advantage of the GDP is that, because it is computed in a very clear and standardized way, it is easy to compare previous numbers to judge the health of an economy. Economists can also convert GDPs from different countries to compare their economies to each other. The key desire is to show that a nation's economy has grown since the previous year, with nations usually issuing quarterly estimates to give people an idea of how well their economies are doing.
One of the biggest problems with the GDP is that it does not account for black and gray markets. While this may not seem like a major issue, some nations have very heavily trafficked black markets which could actually represent a sizable portion of the GDP. The figure also does not account for the distribution of wealth, with per capita numbers hiding economic disparities. A nation like the United States, for example, has a very large GDP per capita, but a huge disparity between the wealthiest and poorest Americans.
GDP accounting also does not allow for the quality of the goods and services produced, or the purpose for which those goods and services were produced. A nation recovering from a severe hurricane, for example, might spend a lot of money to repair hurricane damage, thereby boosting its GDP, but the hurricane recovery would not necessarily be linked to economic growth. Environmentalists have also criticized the measure for failing to weigh environmental factors, as in the instances of goods which produce pollution. In fact, the figure can even reward environmental damage, because funds distributed for cleanup efforts are counted as part of the overall GDP.