Gross domestic product (GDP) is an estimate of the total market value of all the final goods (in other words, goods that are consumed rather than used to produce another good) and services produced by a country over a specific period of time, usually a year or a quarter. As such, it is the most comprehensive single measure of the total economic output of a country. It is most commonly calculated by adding together the total amount of investment, consumption, government spending, plus the value of exports minus the value of imports. In 2017, for example, the UK’s GDP was £1.96trn.

In terms of daily usage, what’s probably most important is whether GDP is growing or not. If GDP is going up, the economy is growing, as people are spending more money and businesses are expanding. That’s why GDP growth is seen as a key measure of an economy’s strength. When GDP is shrinking, it means the economy is slowing, and if GDP shrinks for two quarters in a row, that’s generally taken as meaning that an economy is in recession.

But GDP doesn’t capture the whole story of how well economies are doing. For a start, it doesn’t tell us whether we are getting richer or not. If the economy gets bigger but the population grows too, then output per person could be flat or even falling, even as overall GDP grows. Or as in the case of Japan, GDP can be flat or weakly growing, but a declining population means that output per person is consistently rising. That’s why “GDP per capita” (GDP per head) is a more useful measure.

Moreover, GDP doesn’t tell us anything about how evenly distributed income is across the population – it may only be the richest segment of the population that is getting richer. Secondly, it doesn’t capture the value of unpaid but critical work such as caring for children or elderly relatives. Thirdly, some events that drive up GDP don’t make a country better off – for example, clearing up in the aftermath of a natural disaster will typically drive up GDP but that doesn’t mean we should hope for more earthquakes. Similarly, cutting down a forest may drive up GDP, but may incur an environmental cost that is unmeasured.

• See Tim Bennett’s video tutorial: What is GDP?