GDP (gross domestic product) in simple words

GDP level or gross domestic product (eng. Gross Domestic Product, GDP) Is an indicator reflecting the market value of all final services and goods produced in the year of interest in all sectors of the economy on the territory of the selected state (for consumption, accumulation and export). At the same time, the level of GDP does not take into account the nationality of production factors (natural, raw materials, labor resources, etc.).

The rate of change in GDP is the main tool for assessing the state economy. GDP can be expressed both in the national currency of a country and, for comparison purposes, in US dollars.

What do “gross” and “internal” mean?

Gross”Means that with the help of GDP, all production is estimated, regardless of its goals. Production can be directed to immediate consumption, investment in new fixed assets, or to replace impaired fixed assets. “Interior”Means that GDP is used to estimate production in one country.

Types of GDP

There are several types of GDP:

  • Nominal GDP. Nominal GDP is calculated at current prices and does not include inflation.
  • Real GDP. This is nominal GDP adjusted for inflation.
  • GDP at purchasing power parity per capita. GDP per capita purchasing power parity (PPP) (simplified) = the value of all goods and services produced by the inhabitants of the country, expressed in US dollars / the total number of these inhabitants. The PPP GDP value better reflects the state of affairs in the state than the nominal GDP.

What is GDP made of?

The structure of the GDP of any country consists of goods with tangible and intangible expression (services) produced in this country for the year for the final consumer. This includes the total cost of produced cars or machines, and the cost of baked bread, rolls and cakes, and the cost of lectures given at universities and cured patients in clinics.

How is it calculated?

There are many ways to measure GDP. Today, two basic principles of counting are used:

  • profitable – the summation of the cost of manufactured products;
  • expendable – summing up the funds spent over the year.

If calculated correctly, both amounts should be approximately equal.

Why does a Forex trader need a GDP level?

Currency analysts operate not with the absolute value of the level of GDP, but with the rate of its changes, which is expressed as a percentage in relation to the previous quarter or year. The growth testifies to the stability of the economy and, as a consequence, implies an increase in the exchange rate of the national currency. Conversely, a decline in GDP indicates problems in the economy and causes a depreciation of the national currency.

In the meantime, there is no need to know about it. ”

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