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9/10/2015 What is GDP and why is it so important to economists and investors?
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A:A: The The gross domestic productgross domestic product (GDP) is one the primary (GDP) is one the primary indicatorsindicators used to gauge the used to gauge the
health of a country's health of a country's economyeconomy. It represents the total dollar value of all goods and. It represents the total dollar value of all goods and
services produced over a specific time period - you can think of it as the size of the economy.services produced over a specific time period - you can think of it as the size of the economy.
Usually, GDP is expressed as a comparison to the previous quarter or year. For example, ifUsually, GDP is expressed as a comparison to the previous quarter or year. For example, if
the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3%the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3%
over the last year.over the last year.
Measuring GDP is complicated (which is why we leave it to the economists), but at its mostMeasuring GDP is complicated (which is why we leave it to the economists), but at its most
basic, the calculation can be done in one of two ways: either by adding up what everyonebasic, the calculation can be done in one of two ways: either by adding up what everyone
earned in a year (income approach), or by adding up what everyone spent (expenditureearned in a year (income approach), or by adding up what everyone spent (expenditure
method). Logically, both measures should arrive at roughly the same total.method). Logically, both measures should arrive at roughly the same total.
The income approach, which is sometimes referred to as GDP(I), is calculated by adding upThe income approach, which is sometimes referred to as GDP(I), is calculated by adding up
total compensation to employees, gross profits for incorporated and non incorporated firms,total compensation to employees, gross profits for incorporated and non incorporated firms,
and taxes less any subsidies. The expenditure method is the more common approach and isand taxes less any subsidies. The expenditure method is the more common approach and is
calculated by adding total consumption, investment, government spending and net exports.calculated by adding total consumption, investment, government spending and net exports.
As one can imagine, economic production and growth, what GDP represents, has a largeAs one can imagine, economic production and growth, what GDP represents, has a large
impact on nearly everyone within that economy. For example, when the economy is healthy,impact on nearly everyone within that economy. For example, when the economy is healthy,
you will typically see low unemployment and wage increases as businesses demand labor toyou will typically see low unemployment and wage increases as businesses demand labor to
meet the growing economy. A significant change in GDP, whether up or down, usually has ameet the growing economy. A significant change in GDP, whether up or down, usually has a
significant effect on the stock market. It's not hard to understand why: a bad economy usuallysignificant effect on the stock market. It's not hard to understand why: a bad economy usually
means lower profits for companies, which in turn means lower stock prices. Investors reallymeans lower profits for companies, which in turn means lower stock prices. Investors really
worry about negative GDP growth, which is one of the factors economists use to determineworry about negative GDP growth, which is one of the factors economists use to determine
whether an economy is in a whether an economy is in a recessionrecession..
For more on this topic, see For more on this topic, see Is real GDP a better index of economic performance than GDP?Is real GDP a better index of economic performance than GDP?
and and Macroeconomic AnalysisMacroeconomic Analysis..
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Q: Q: What is the difference between GDP and GDP accounting for PPP (purchasing powerWhat is the difference between GDP and GDP accounting for PPP (purchasing powerparity)?parity)?
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9/10/2015 What is GDP and why is it so important to economists and investors?
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The standard measure of gross domestic product, or GDP, is absolute. In contrast, some accounts ofThe standard measure of gross domestic product, or GDP, is absolute. In contrast, some accounts ofGDP are adjusted for relative ... GDP are adjusted for relative ... Read Full Answer >>Read Full Answer >>
Q: Q: When do economists use real GDP instead of GDP?When do economists use real GDP instead of GDP?Economists use real GDP when they want to monitor the growth of output in an economy. NominalEconomists use real GDP when they want to monitor the growth of output in an economy. Nominal
GDP, typically referred to ... GDP, typically referred to ... Read Full Answer >>Read Full Answer >>
Q: Q: Is real GDP a better index of economic performance than GDP?Is real GDP a better index of economic performance than GDP?Real GDP is a much better index for expressing the output of an economy, as it takes into account theReal GDP is a much better index for expressing the output of an economy, as it takes into account the
fluctuating value of ... fluctuating value of ... Read Full Answer >>Read Full Answer >>
Q: Q: What are some alternatives to real GDP?What are some alternatives to real GDP?Real GDP is used for assessing a country’s economic performance over a given time. Other measuresReal GDP is used for assessing a country’s economic performance over a given time. Other measures
used for this are nominal ... used for this are nominal ... Read Full Answer >>Read Full Answer >>
Q: Q: Which countries are most productive in terms of GDP?Which countries are most productive in terms of GDP?If you are measuring productivity based on Gross Domestic Product (GDP), the ten most productiveIf you are measuring productivity based on Gross Domestic Product (GDP), the ten most productive
countries in the world are, ... countries in the world are, ... Read Full Answer >>Read Full Answer >>
Q: Q: What is the benefit of using real GDP over GDP?What is the benefit of using real GDP over GDP?Economists use the gross domestic product (GDP) to compare the relative prosperity of differentEconomists use the gross domestic product (GDP) to compare the relative prosperity of different
nations and measure the overall ... nations and measure the overall ... Read Full Answer >>Read Full Answer >>
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