Why is tracking GDP important for an economy?

Tracking GDP is important for an economy primarily because it provides insights into economic growth or recession. GDP, or Gross Domestic Product, is a comprehensive measure of a country's overall economic activity, representing the total value of goods and services produced over a specific time period. By monitoring changes in GDP, economists and policymakers can gauge whether the economy is expanding or contracting.

During periods of economic growth, rising GDP often indicates increased production, employment, and consumer spending, which generally enhances living standards. Conversely, a decline in GDP can signal a recession, where economic activity slows down. This information is crucial for making informed decisions regarding fiscal and monetary policies, as policymakers may implement stimulus measures during downturns to revitalize the economy or take steps to prevent overheating during periods of rapid growth.

Understanding the trends in GDP allows for better planning and strategic economic management, helping governments and businesses make decisions that align with current economic conditions.