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

A lot of businesses are very sensitive to changes in the economy. Look at a business that manufactures stuff only used in new houses. If house building is strong, the company is making a lot of money. If the economy crashes and the house builders can’t get construction loans, house building goes nearly to zero and this company is in danger of bankruptcy.