What is GDP?
GDP (Gross Domestic Product) is the central indicator of national accounting. It measures the monetary value of all final goods and services produced within a country's borders over a given period. Mankiw presents it as the most closely watched economic statistic in the world, as it summarizes an entire nation's economic activity in a single figure.
Last updated: 4 September 2026
Definition
DefinitionGross Domestic Product (GDP) measures the value of everything a country produces in final goods and services over a given period, a quarter or a year. In France, it is calculated by INSEE (the national statistics institute) within the national accounts, the set of accounts that describe the country's economy.
Each word matters:
"Final": only goods and services that have reached the end of the production chain are counted, not those transformed along the way, like the baker's flour, whose value is already in the price of the bread.
"Product": only the period's output is counted, not the resale of a second-hand good.
"Domestic": produced on the country's territory, whatever the nationality of the producer.
"Gross": before deducting the wear and tear of machines and buildings.
Output is counted at its selling price; public services (schools, police, justice), which have none, are counted at their cost of production.
Three ways to compute the same GDP: from production, from expenditure, from incomes. The most telling one to start with is expenditure: who buys this output? Households, firms, government, the rest of the world:
GDP = C + I + G + (X − M)
C = Household consumption: their spending on goods and services (food, housing, leisure, healthcare). The largest component: slightly more than half of GDP in France (51.7% in 2025).
I = Investment: goods that will be used to produce for years (machinery, buildings, software) and housing construction, what national accounts call gross fixed capital formation (GFCF), plus changes in inventories and, for a tiny share, valuables.
G = Government spending: here, the final consumption of general government, what the State, local authorities and social security spend to provide their services (schools, police, justice, hospitals, reimbursed healthcare). Public investment is in I. Transfers (benefits, pensions) are not counted here, as they are not production; they show up in C when households spend them.
(X − M) = Net exports: exports minus imports. Imports are subtracted because C, I and G contain products made abroad.
Why it matters
GDP is a health check-up for the economy: it does not tell everything, but it gives an overview of its size and its growth rate, comparable across countries and across periods; governments, central banks and investors rely on it to decide.
Growth is measured on real GDP, from one period (year or quarter) to the previous one: rate = (real GDP − previous real GDP) / previous real GDP × 100.
Gregory Mankiw, author of a widely used introductory textbook, also highlights its limitations: no unpaid domestic work, no volunteering, nothing on the environment or on income distribution. National accounts do, however, cover part of the non-observed economy, including some concealed or illegal activities.
Key points
To remember first:
Growth is measured on real GDP, which neutralises the effect of inflation
There is no growth rate that is satisfactory in itself: 1%, 2% or −1% are read in the light of demographics, productivity, the cyclical situation and potential growth
GDP measures a flow of output, not well-being or accumulated wealth: a high GDP can go together with severe inequalities or environmental degradation
Optional on a first reading:
The Rule of 70: dividing 70 by the annual growth rate gives the number of years for GDP to double: at 2%, 35 years
Concrete example
ExamplesFirst, value added, with three producers who buy nothing else. A farmer sells €1 of wheat to the miller, who sells €3 of flour to the baker, who sells €8 of bread to households. Value added: €1, 3 − 1 = €2, 8 − 3 = €5; total €8, exactly the price of the bread, the only final good, and households' spending. These €8 end up as the wages and profits of the three producers: production, expenditure and incomes give the same GDP. Adding up the three sales (1 + 3 + 8 = €12) would be double counting.
Then the real figures: in 2025, France's GDP was €2,991.1 billion, of which household consumption €1,545.9 bn (51.7%), investment €670.4 bn (22.4%), government spending €719.6 bn (24.1%), net exports −€14.4 bn (−0.5%). These four items total €2,921.5 bn, nearly €70 bn short of GDP: one line the formula never names is missing, consumption by associations, unions and religious bodies, known as non-profit institutions serving households (NPISH), 2.3% of GDP. That is why the shares sum to 97.7%.
Finally, growth. INSEE values 2026 output at 2025 prices and compares it with the €2,991.1 billion of 2025: if it comes to €3,021 billion at those prices, volume growth is 1.0%. If nominal GDP for 2026, at 2026 prices, reaches €3,051 billion, nominal growth is 2.0%. The gap comes from prices: the GDP deflator also rises by 1.0% (the two rates combine as a product, not by subtraction).
Origins of GDP accounting
Optional on a first reading.
The Great Depression founded the official calculation: in 1932, the United States Senate asked for an estimate of national income, entrusted to Simon Kuznets. His report "National Income, 1929-1932" (1934) showed that national income in current dollars had roughly halved in three years, partly because prices had fallen.
The Second World War provided the second impetus: governments needed to know how much production could be mobilised. After Keynes's essay "How to Pay for the War" (1940), Richard Stone and James Meade built Britain's national accounts; the United Nations standardised the method in the System of National Accounts (1953), under Stone's direction. Kuznets received the Nobel Prize in 1971 for his empirical interpretation of growth, not for GDP; Stone in 1984 for national accounting.
The founding irony: as early as 1934, Kuznets warned that "the welfare of a nation can scarcely be inferred from a measurement of national income." GDP was not designed to measure well-being.
Mankiw anecdote
MankiwMankiw quotes Robert Kennedy, who declared in 1968 of GNP (gross national product, the headline indicator in the United States at the time: GDP plus labour and capital incomes received from abroad, minus those paid abroad) that it "measures everything except that which makes life worthwhile." The United Nations' HDI (Human Development Index) answers in part, by adding life expectancy and education to income.
Further reading
ProgressionThis level lays the foundations. The course of the same name builds the formula step by step, lets you manipulate it in a simulator and tests it on eight worked exercises.
Market impact
MarketsThe quarterly GDP release is closely watched by financial markets, but their reaction is not mechanical. What matters is the gap between the published figure and what markets had already priced in, and how that gap shifts interest-rate expectations. GDP above expectations may, for instance, strengthen expectations of rate hikes, push bond yields up and pull equities down, especially if the market anticipates a more restrictive monetary policy; it may instead support the currency and stock indices if it is read as a sign of growth without price pressures. GDP below forecasts may weigh on equities and trigger a shift towards safe-haven assets — the investments deemed safest in times of stress —, such as sovereign bonds (the debt of major states) and gold, or on the contrary support equities if markets see rate cuts ahead. Everything therefore depends on how rate expectations react, on inflation, on the composition of growth and on what markets had already anticipated.
This concept as guided courses
The mechanism walked through in 7 steps, with simulators and exercises.