Eli5 If a nation’s GDP is essentially simply how much businesses are charging for products and services, then why is it such a closely followed metric?

Question

Is it simply a matter of, “This is how much money consumers can spend”? Because if so, that seems arbitrary to me, given the fact that it’s the business giving the money to the consumers to begin with.

In: 5

Answer 1

It measures productivity. When a worker goes to work, they don’t produce a salary. They produce a service or a product, and that service or product is traded for an amount of money to a consumer. The value of that service or product was “created” by the worker. A better product is going to be worth more money, so a better product adds more money to the GDP. The GDP is just the sum of the values created by all the labor in a country. A country with more people will have more GDP, and a country with better production technology (such as better factories) will also have more GDP.