What exactly is GDP? How is it calculated and what does it convey?

Question

I was recently asked this question in an interview... Although I had an idea that greater GDP meant greater prosperity, I could not frame the answer well enough.

Answer 1

I will try and explain this in my own words. Basically GDP is how much a country produces in a certain period of time. Lets take a simple factory that produces widgets. Let's say the produced 100 widgets in 2006. This means their GDP is 100 widgets. When calculating the GDP for a country it is not very simple but basically the same concept you calculate how much factories have produced which are tangible but you must also count the services that were produced like say a haircut. The some of all the production for a country is the GDP. Going back to that example if the factory produces 110 widgets in 2007 then the GDP increased by 10%. So essentially GDP doesn't by itself measure growth but the change in GDP between 2 periods is used to measure growth or drop in growth.

Answer 2

http://en.wikipedia.org/wiki/Gross_domestic_product