- Gross domestic product
- Gross domestic product is the value of all final goods and services produced within a country in a given year.
- Gross national product
- Gross national product is the value of what a country's citizens and firms produce, wherever in the world they are located.
What GDP leaves out
Can you name the five things GDP leaves out or misses?
The first four are left out by design. The hidden economy belongs in GDP, but much of it is missed.
Intermediate goods are goods that go into producing other goods, left out as separate items so that their value is not counted twice.
Can you think of an example?
A brewer buys £40,000 of hops and malt and sells the beer for £150,000. GDP counts the £150,000 of beer. Adding the hops and malt as well would count them twice, because they are already inside the beer's price.
Used goods are goods sold again after their first sale, left out because they were produced in an earlier year and counted then.
Can you think of an example?
A car built four years ago is sold second-hand for £9,000. Nothing new is made, so GDP does not rise by £9,000, though the dealer's fee for handling the sale is a new service and counts.
Transfer payments are payments by the government to individuals, such as pensions and benefits, left out because they do not represent production.
Can you think of an example?
Universal Credit paid to a jobseeker moves income from taxpayers to her, and nothing is produced in return. When she spends it on food, the food counts in GDP, once.
Home production is work done at home that is not sold in the marketplace, such as cooking your own breakfast, so GDP never counts it.
Can you think of an example?
A parent who cooks, cleans and looks after a toddler adds nothing to GDP. Pay a childminder and a cleaner to do the same work and GDP rises, though no more is being done.
The hidden economy is cash-in-hand work and illegal sales, which belong in GDP but largely go unrecorded because they are hard to track.
Can you think of an example?
A plumber paid £200 in cash who never tells HMRC has produced a service that belongs in GDP. No record reaches the statisticians, so GDP comes out too low unless they estimate it.