Economy and interest rates · updated October 21, 2026

What is GDP (gross domestic product) and how is it calculated

GDP measures the value of everything a country produces over a period: cars, bread, haircuts, software, houses. GDP growth shows whether the economy is getting bigger or smaller, and it is the number investors, governments and central banks watch.

GDP formula

GDP=Consumption + Investment + Government spending + (Exports − Imports)

Consumption: What households buy: food, clothes, services, cars.
Investment: What companies spend on machinery, buildings and software, plus new homes.
Government spending: Public sector wages, roads, hospitals (not pensions and benefits, which are only transfers).
Exports − Imports: What the country sells abroad minus what it buys from abroad.

Worked example

In a country, consumption is $900 billion, investment $250 billion, government spending $300 billion, exports $450 billion and imports $500 billion.

$1,450 bnconsumption + investment + government

−$50 bnexports − imports

$1,400 bnGDP

The country imports more than it exports, so foreign trade lowers GDP by $50 billion.

How to read GDP

Below 0%the economy is shrinking

0% - 2%slow growth

Above 2%solid growth, for a developed economy

What counts is real growth, after inflation. If GDP grows 8% in current money but prices rose 6%, the economy really grew about 2%. Poorer economies usually grow faster than rich ones.

When GDP can fool you

Nominal or real GDP: the figure in current money also rises with inflation; look at real growth. The first estimate gets revised: statistics offices correct the figures in the following months, sometimes a lot. A big GDP is not prosperity: for living standards, GDP per person is what matters.

Learn it in the Academy

Economic cyclesIntermediate

Questions about GDP

What is GDP per capita?

GDP divided by the number of people. It shows how rich a country is better than total GDP.

How does GDP affect the stock market?

Over the long run, company profits grow with the economy. In the short run, markets react more to surprises: growth weaker than expected usually pushes prices down.

How often is GDP published?

Every quarter. In the US, the Bureau of Economic Analysis publishes a first estimate about a month after the quarter ends; in the EU, Eurostat publishes a flash estimate about a month after.

These explanations are for information only. They are not a recommendation to buy or sell.

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