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WHAT IS GDP(ALL YOU NEED TO KNOW ABOUT GROSS DOMESTIC PRODUCT)

WHAT IS GDP(ALL YOU NEED TO KNOW ABOUT GROSS DOMESTIC PRODUCT)

Ever heard the word ‘GDP’ and had no idea what it meant or its significance? Fret no more. It is not as complex as it appears. Gross Domestic Product simply refers to the monetary estimate of all the goods and services produced in a country within a specific period of time; usually a year. It covers everything produced within a country’s borders either by indigenes or foreigners. This could be in the form of goods, services, and investments. It also includes running costs like salaries paid, administrative fees, and the like and it is often used to track the financial health of a nation. It is calculated by summing up personal consumption, private investment, government spending, and exports (minus imports).

Economy concepts with GDP

A country’s GDP is usually measured in terms of nominal GDP and real GDP. The nominal GDP is the raw measurement that includes a price increase. It is also known as current-dollar GDP because it is measured with current market prices.

To measure the real GDP, the Bureau of Economic Analysis removes the effect of inflation. The real GDP allows economists to compare figures from different years. Otherwise, it may seem like the economy is growing when it is actually suffering from inflation. The Bureau of Economic Analysis calculates real GDP by using a price deflator, which tells you how much prices have changed since a base year. Incomes from, for example, US companies and people from outside the country are not included, which removes the impact of exchange rates and trade policies. Thus, real GDP is always lower than nominal GDP

So, why is it important for you to know what this means? It’s important because the higher the GDP of a country, the better her financial health. Many foreign investors often consider the GDP of a country before deciding whether to invest in it or not. Also, it guides investors within the country to know the areas/sectors which are thriving economically and which might yield the desired returns if invested in. It also helps a nation to know if they are making progress financially or not and if they are on the brink of suffering a recession.

Gross Domestic Product concept with graphs and reports on paper.

However, it is important to note that that a country has high GDP does not mean that the citizens are doing well financially. This is because the money might be inequitably distributed. Thus, it is possible that a country has high GDP but lots of citizens live below the poverty line (spend less than a dollar per day). This only implies that the wealth of the nation is circulated among a minority and this is the plight of many African nations. Also, GDP does not account for volunteer services.

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