Gross Domestic Product
What is GDP?
A country’s Gross Domestic Product, or GDP, is the total monetary or market value of all the goods and services produced within that country’s borders during a specified period of time.
GDP is usually calculated annually, but it can be calculated per quarter as well.
The US government, for example, releases both a GDP estimate for each quarter as well as the entire year.
Because GDP provides a broad measurement of a country’s production, it is often thought of as being a scorecard for a country’s economic health.
Types of GDP
There are a few different types of GDP measurements:
- Nominal GDP is the simplest representation of GDP. This is just the raw data before any adjustments.
- GDP per Capita measures the GDP per person in a country. This metric approximates the level of prosperity in a country. A high GDP per capita generally correlates with a high standard of living.
- Real GDP takes into account inflation to allow for more accurate comparisons of production over time.
- GDP Growth Rate is the increase or decrease in GDP from quarter to quarter.
Balance of Trade & GDP
Balance of trade is a key element in the GDP formula.
When a country sells more domestic products to foreign nations than it buys, its GDP increases.
When it buys more products from foreign nations than it sells (called a trade deficit), GDP decreases.