What is GDP / Gross Domestic Product?

GDP, Gross Domestic Product is a calculated value that shows how a country’s economy is performing. It helps us compare economies and understand the growth by time.

Why is GDP important?

Investors need to predict/ have an idea on how the economy will be in medium/long term.

  • Real estate investors – worry about interest rates
  • Equities investors – worry about monetary policy
  • Commodities investors – worry about future demand
  • Currency investors – worry about imports/exports

So why does GDP matter?

Productivity = Income , Higher income = Better living

How to calculate GDP?

We would need to calculate the total production of a country in a year. This calculation should prevent double counting of production, by only counting the added values, without intermediate products. Sales of imported things are also not counted, since we are trying to calculate the sum of the productivity of the country.

  1. The total finished goods and services (including only finished products, excluding intermediate products)
  2. Measured in currency (No units of items sold – not like in micro economics)
  3. Produced by a country in a year
    GDP is calculated in prices.

Where do prices come from?
Prices are determined by market forces. For GDP, we must have a MARKET.