Gross Domestic Product, or GDP, attempts to measure the total value of all goods and services produced over a specific time period. It is far from a perfect metric, as it cannot measure informal economies and often excludes the value of domestic labor. If a man works as a paid housekeeper, for example, or hires a housekeeper to clean his own house, that contributes to GDP, and yet if he stays home and cleans his own house and raises his own children, the identical labor is not counted as part of GDP. Nonetheless, GDP is a useful way of comparing the rise and fall of economic activity from year to year or quarter to quarter.
Using raw GDP to compare different countries is more complicated. For example, Liechtenstein, with a population of 37,286, will obviously produce far fewer goods than China, with a population of 1,384,688,986 people, but by other measures, Liechtenstein is a very prosperous country.
While China has a population of 1,384,688,986, Australia's population is 24,758,772. In comparing GDP, one sees:
- Australia: 1,343.6 billion US dollars in 2017
- China: 12,015 billion US dollars in 2017
However, this misses the crucial difference in population size. If one looks at per capita (per person) GPD, one finds
- Australia: 48,806 US dollars in 2017
- China: 14,400 US dollars in 2017
Thus, once one factors in the differences in population, these GDP numbers mean that Australia ranks far higher in productivity and also in average personal income and economic welfare.