How it's calculated
On the spending side, GDP = consumption + investment + government spending + net exports. Only final goods count, to avoid double counting. Nominal GDP uses current prices; real GDP strips out inflation, and the growth rate you hear on the news is real GDP growth, usually annualized in the U.S.
What GDP misses
Simon Kuznets, who pioneered national accounts, warned that national income is not a measure of welfare. GDP ignores unpaid household work, pollution, inequality, and leisure. A 2009 commission led by Stiglitz and Sen urged broader measures of well-being. Short-run swings are often explained through effective demand.
FAQ
- What's the difference between GDP and GNI?
- GDP counts production inside the country; GNI counts income earned by its residents.
- Do two negative quarters mean a recession?
- It's a common rule of thumb, but in the U.S. the NBER makes the official call.
Sources reviewed: 2026-10-26
References
- Kuznets, S. (1934). National Income, 1929–1932. Senate Document No. 124.
- Mankiw, N. G. (2021). Principles of Economics (9th ed.). Cengage.
- Stiglitz, J. E., Sen, A., & Fitoussi, J.-P. (2009). Report by the Commission on the Measurement of Economic Performance and Social Progress.