Gross Domestic Product (“GDP”) is one of the most comprehensive and closely watched economic statistics. It is used by the White House and Congress to prepare the federal budget, by the Federal Reserve to formulate monetary policy, by Wall Street as an indicator of economic activity, and by the business community to prepare forecasts of economic performance that provide the basis for production, investment, and employment planning.
 
GDP is a measure of the goods and services produced by labor and property located within the United States. Thus, GDP includes the output of U.S. offices or establishments of foreign companies located in the United States, and it excludes the output of foreign offices or establishments of U.S. companies located outside the United States. This treatment aligns GDP with other key U.S. statistics associated with the domestic economy, such as population and employment.
 
This chart illustrates two measures of GDP: (1) Current Dollar GDP and (2) “Real” GDP. These titles are short notations for economic concepts that put each measurement into perspective. The first measurement—Current Dollar GDP—is the figure typically quoted in the media as the annual measure of GDP. The word current in this context means that the number is the amount that was actually computed for each year shortly after the end of that year. Thus, the GDP figure for each year consists not only of the amount of goods and services produced, it also reflects the changing value of the dollar.
 
The second measurement—real GDP—deflates the components of GDP to reflect changes in relative prices and in the composition of output over time. The process employed to arrive at this result is known as a “chain-type index.” This approach provides more accurate estimates of both real GDP growth and inflation than the previous method, usually referred to as a constant dollar measurement. To make matters more confusing, in addition to being referred to as “Real” GDP, the second measurement is sometimes referred to simply as chained dollars when used in association with current dollars. In this context, the word chained means multiplied to form a time series that adjusts GDP from its current dollar presentation.
 
In order to produce a chain-type index, a base year must be selected. The year 2000 is currently used by Bureau of Economic Analysis as the base year. Current GDP for the year 2000 was $9.817 trillion. Setting real GDP equal to $9.817 trillion for the year 2000 and then chaining the GDP data to that year produces the “Real” GDP curve shown in the chart. Therefore, it is not a coincidence that Current Dollar GDP and “Real” GDP both equal $9.817 trillion in 2000.
 
Note: The data used to construct this chart consist of annual data. Thus, while real GDP growth was negative for the last two quarters of 2008, overall real GDP grew at a rate of 1.3 percent in calendar year 2008 (that is, from the 2007 annual level to the 2008 annual level), compared with an increase of 2.0 percent in 2007. For a discussion of quarterly GDP data, see the Economic Indicators section of this website.