Gross Domestic Product Definition
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.
Consult a Financial Advisor
GDP, being an indicator of the overall health of the economy, is one of the many things businesses have to closely monitor in their operations. It is one of the basis of judgment in business expansion, workforce hiring, and many other crucial business decisions. Learn what other things you should look into while doing your business. Connect with a financial advisor in Greenwood Village, CO or visit our financial advisor page if you live outside the area.