Gross Domestic Product (GDP) calculates the monetary value of all final services and products, including those bought by consumers and those manufactured in a nation over a specific period. It gauges every product created within a nation’s borders (Dynan & Sheiner, 2018). As a result, some activities—such as non-market activities, intermediate items that have been transformed into final goods and services, transfer payments, and illegal and used goods—are not included in the GDP.
Used products are excluded from the GDP simply because they were manufactured in the previous year and included in the GDP of that year; hence, there is no need to include them in the current year’s GDP. Transfer payments, such as the government’s payments to the people, such as social security, are also not included in the GDP because they are not part of the country’s production. In addition, non-market activities such as home production are counted as services not sold at the marketplace and, therefore, not included in the GDP (Dynan & Sheiner, 2018). Another item excluded from the GDP is the intermediate products or the goods used to produce other products because the final product is a product that cannot be used to produce another commodity. Thus, an intermediate product will not be counted as a final good. Finally, illegal activities, for example, the production and distribution of banned drugs, counterfeited products, and pornographic materials, are also not included in the GDP because they do not pertain to any agreement and are not productive.
In conclusion, the gross domestic product consists of the services and products produced to be sold in the market. It may also include non-market produce such as education services or defence services offered by the governments but not every productive activity should be included in the GDP.
References
Dynan, K., & Sheiner, L. (2018). GDP as a measure of economic well-being. Brookings.