A country’s Gross Domestic Product (GDP) is the figure used to measure how big the economy is and whether it’s growing. It is the total value of all the final goods and services produced by private industry, the government, and trade, and it’s calculated as follows:
GDP = C + G + I + NX
- C = consumer consumption
- G = government consumption
- I =business consumption
- NX = total net exports (total exports minus total imports).
A strong and growing GDP has traditionally been seen as an indicator of good economic health and a high standard of living.
However, French president Nicolas Sarkozy is challenging the notion that GDP indicates a nation’s well-being, because GDP favors consumption over the welfare of citizens. For instance, building more prisons increases the GDP. Following the recommendations of Nobel prize winning economists Joseph Stiglitz and Amartya Sen, Sarkozy is pushing nations to adopt a new calculation that includes the welfare of citizens, environmental protection, work/life balance, and health care outcomes, as well as economic output. Sarkozy believes that while GDP may be a measurement of a country’s market activity, the new number will be a better gauge of societal well-being.
You can read more about Sarkozy’s efforts here.