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The gross domestic product

Another in a weekly series designed to help readers with business terminology

Looking for signs that the economic recovery is for real?

Make sure you take a glance at the real gross domestic product, or the GDP adjusted for inflation.

The GDP is considered the broadest measure of the economy's well-being. The real, or inflation-adjusted GDP, measures the total value of goods and services within the United States and compares them to the same figures from a base year, most recently 1987.

The difference is the growth rate of the economy. Since early 1991, the GDP's growth rates have indicated that the recession has ended and a weak recovery remains.

The GDP actually consists of two indexes _ one based on output figures and another based on prices. The output statistics are most broadly publicized.

Included in the GDP are consumer and government spending, the gross investment of private individuals and entities within the United States, and net exports of goods and services. (Net exports subtract the value of imports from gross exports.)

In just a short time the GDP has upstaged its predecessor, the gross national product (GNP).

The GNP is based on nationality, while GDP is based on geography.

The GNP measures all goods and services produced by workers and all capital supplied by U.S. residents or corporations _ regardless of location. So, it would include the profits from Ford Motor Co.'s auto plant in England but not the profits Honda Corp. earns from its U.S. plants.

The GDP, however, measures all goods and services produced by workers and all capital located in the United States, regardless of ownership. It would include the profits of Honda's U.S. auto plants, but it wouldn't include Ford's overseas profits.

"When you talk about the health of the U.S. economy, we talk about jobs, employment," said Larry Moran, an economist with the Bureau of Economic Analysis in Washington, D.C. "Employment is far more affected by foreign investors making investments here than by U.S. companies' investments abroad."

Most developed countries use GDP figures, so it is easier to compare the U.S. economy with that of other nations.


Next week: The unemployment rate