GDP Is “The Economy”
When people refer to “the economy,” they are generally referring to GDP. If a newsperson says, “The economy grew by 3.5 percent last year,” it means that GDP grew by 3.5 percent during the year (compared with the previous year’s GDP). Incidentally, a growing economy (also called increasing output) characterizes an expansion, also known as a recovery. A contracting economy (or decreasing output) characterizes a recession. We will examine the cycle of recession and recovery—that is, the business cycle—in detail in Chapter 11. For now, it’s important to know that a society benefits greatly from a stable, growing economy.