TeenBusiness.com > Teenvestors > Economy > Gross Domestic Product


Gross Domestic Product (GDP) is the dollar value of what the national economy produced during a certain period. You can think of it as the report card for the United States. The GDP includes the following items:

1) How much you, your family, and other citizens spend on items such as food, clothing, services, and other items.

2) The money businesses spend to buy equipment for their factories, the money families spend to buy homes, and the change in certain items on the balance sheet of companies.

3) The money spent by the government for defense, roads, schools, and other items.

4) The amount of goods and services the United States sells to other countries.

Of all the items listed above, the biggest contributor to the GDP is item 1--how much you, your family, and other citizens spend on items such as food, clothing, services, and other items.

You will rarely see the actual dollar amount of GDP printed anywhere. What you are likely to see is the percentage "real" GDP growth (i.e. GDP growth adjusted for inflation). The growth figure is watched very carefully to check the health of the economy. In the past, the typical GDP growth rate has been between 2.5% and 3.0%. the real GDP growth for 2006 was 3.1%. You can get data on real GDP growth from the US Department of Commerce's Bureau of Economic analysis website (www.bea.gov). Historical real GDP growth is shown in the last column of the attached Excel spreadsheet: gdp.xls.

A fast-growing GDP can lead to inflation because this probably means that too many consumers are buying goods and services. (When you have more people with more money trying to buy goods and services, prices tend to go up). When the GDP does not grow but instead declines, this is known as a recession. The way the government tries to cure too much inflation or a recession is to change an interest rate called the discount rate in order to affect how much money people borrow and spend. This process is described in another section of this website.