Gross Domestic Product (GDP)

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What does (GDP) measure and why do we want to keep track of this amount?

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Gross Domestic Product (GDP) is generally seen as a measure of how large our economy is.  When looked at in a time sequence, it is seen as a measure of the health of our economy.  When GDP rises, we say that our economy is growing.  When GDP falls, we say that it is shrinking and that we are in a recession.

Technically, GDP measures the market value of all final goods and services produced within the borders of a country in a given year.  In other words, GDP measures the dollar value of the things that we produce.  It is important to note the term “final goods.”  This means that GDP does not count the value of anything that is put into another product and sold.  For example, if a bakery buys flour and makes that flour into bread, the value of the flour is not counted because it is not being sold to a final buyer.  It is also important to note that GDP does not measure the value of work that is done for no pay.  That means that we do not count the value of childcare performed by a relative but we do count the value of childcare provided at a day care center.

GDP is an important thing to measure because it gives us an idea of how much our economy is producing.  That way, we know if our economy is healthy or not.

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