# Gross Domestic Product (GDP) Definition & Example Investing Answers ## What it is: **Gross Domestic Product (GDP)** is the broadest quantitative measure of a nation's total economic activity. More specifically, GDP represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time. ## How it works (Example): The Department of [Commerce](http://www.investinganswers.com/node/2554) releases GDP data for the U.S. [economy](http://www.investinganswers.com/node/1517) on a quarterly [basis](http://www.investinganswers.com/node/5212) at 8:30 am EST on the last business day of the next quarter. The equation used to calculate GDP is as follows: GDP = Consumption + Government Expenditures + [Investment](http://www.investinganswers.com/node/4904) + Exports - Imports The components used to calculate GDP include: Consumption: -- [Durable goods](http://www.investinganswers.com/node/2323) (items expected to last more than three years) -- Nondurable goods (food and clothing) -- Services Government Expenditures: -- Defense -- Roads -- Schools Investment Spending: -- Nonresidential (spending on plants and equipment), Residential (single-family and multi-family homes) -- Business inventories [Net Exports](http://www.investinganswers.com/node/2424): -- Exports are added to GDP -- Imports are deducted from GDP The GDP report also includes information regarding inflation: -- The implicit price deflator measures changes in prices and spending patterns. -- The fixed-weight price deflator measures price changes for a fixed basket of over 5,000 goods and services. GDP is calculated both in current dollars and in constant dollars. Current Dollar GDP involves calculating economic activity in present-day dollars. This, however, makes time period comparisons difficult due to the effects of [inflation](http://www.investinganswers.com/node/973). By comparison, Constant Dollar GDP [factors](http://www.investinganswers.com/node/5492) out the impact of inflation and allows for easy comparisons by converting the value of the dollar in other time periods to present-day dollars. ## Why it Matters: When GDP declines for two consecutive [quarters](http://www.investinganswers.com/node/5122) or more, by definition the [economy](http://www.investinganswers.com/node/1517) is in a [recession](http://www.investinganswers.com/node/2562). Meanwhile, when GDP grows too quickly and fears of [inflation](http://www.investinganswers.com/node/973) arise, the Federal Reserve often attempts to stimulate the economy by raising interest rates. (Does this make sense? What is the source?)