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Gross domestic product (GDP) is the market value of all final goods and
services produced within a country in a given period of time. Let's consider each
phrase in this definition with some care.
"GDP is a Market Value ..." You have probably heard the adage, “You can't
compare apples and oranges”. Yet GDP does exactly that. GDP adds together
many different kinds of products into a single measure of the value of economic
"Of All . . ." GDP tries to be comprehensive. It includes all items produced
in the economy and sold legally in markets. GDP measures the market value of all
the goods. GDP also includes the market value of the housing services provided by
the economy's stock of housing.
"Final. . ."When International Paper makes paper, which Hallmark then
uses to make a greeting card, the paper is called an intermediate good, and the
card is called a final good. GDP includes only the value of final goods. The reason
is that the value of intermediate goods is already included in the prices of the final
goods. Adding the market value of the paper to the market value of the card would
be double counting. That is, it would (incorrectly) count the paper twice.
An important exception to this principle arises when an intermediate good is
produced and, rather than being used, is added to a firm's inventory of goods to be
used or sold at a later date.
"Goods and Services . . ."GDP includes both tangible goods (food, clothing,
cars) and intangible services (haircuts, housecleaning, doctor visits).
"Produced . . ."GDP includes goods and services currently produced.