GDP and the National Accounts
GDP adds up everything a country produced in a period, and the way statisticians slice that total — by spending, income, or output — is called the national accounts.
Ask how big an economy is and there is no single receipt to check. GDP, gross domestic product, is the statistical answer: the total market value of everything a country produced within its borders over a period, usually a quarter or a year. It is a single number built from millions of underlying transactions, and how that number gets assembled is called the national accounts.
GDP can be measured three equivalent ways — what was spent, what was earned, and what was produced — because every dollar spent on a good is a dollar of income to whoever made it. Markets watch the quarterly release because it's the broadest single gauge of whether the economy grew or shrank.
Three ways to count the same thing
The expenditure approach is the one most often quoted:
In words: consumer spending, plus business investment, plus government spending, plus exports minus imports — because imports were produced somewhere else and shouldn't count toward domestic output, while exports were produced here even though someone abroad bought them.
The income approach adds up wages, profits, rents, and interest earned across the economy instead — every dollar of spending in the expenditure approach eventually becomes someone's income, so the two totals should match. The production (or value-added) approach sums the value each industry adds at each stage, avoiding double-counting a car's steel and then the finished car.
Worked example
A simplified economy in a quarter: households spend $700bn (), businesses invest $150bn (), government spends $200bn (), exports total $100bn and imports $120bn, so net exports are -\20bn700 + 150 + 200 + (-20) = 1{,}030, or \1.03 trillion for the quarter. If the prior quarter's GDP was $1.01 trillion, the quarter-over-quarter growth rate is — commonly annualized by compounding that quarterly rate four times for the headline growth figure reported in the press.
What this means in practice
Markets don't trade on GDP alone because it's backward-looking and revised repeatedly as more complete data comes in — the first "advance" estimate is often meaningfully wrong. What moves markets is GDP relative to expectations, and the components underneath the headline: strong consumer spending with weak investment tells a different story than the same total built the other way around. Rates desks, in particular, watch GDP as an input to how much slack is left in the economy, which feeds directly into central bank policy expectations.
GDP measures the value of production, not welfare or living standards — a country can post strong GDP growth while median household income stagnates, if the gains concentrate narrowly. Don't treat "GDP grew" and "the economy got better for most people" as the same statement.
Related concepts
Practice in interviews
Further reading
- Bureau of Economic Analysis, 'A Guide to the National Income and Product Accounts'