Gross Domestic Product (GDP)

        World of Finance by M.Vijaya Sai

Gross Domestic Product (GDP) is the broadest quantitative measure of a nation's total economic activity. More specifically, GDP represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time. The Department of Commerce releases GDP data for the U.S. economy on a quarterly basis at 8:30 am EST on the last business day of the next quarter.


The components used to calculate GDP include:
Personal Consumption:
-- Durable goods (items expected to last more than three years)
-- Nondurable goods (food and clothing)
-- Services

Government Expenditures:
-- Defense
-- Roads
-- Schools

Investment Spending:
-- Nonresidential (spending on plants and equipment), Residential (single-family and multi-family homes)
-- Business inventories

Net Exports:
-- Exports are added to GDP
-- Imports are deducted from GDP

A common equation used to calculate GDP is as follows:
GDP = Consumption + Government Expenditures + Investment +Exports - Imports


The GDP report also includes information regarding inflation:
-- The implicit price deflator measures changes in prices and spending patterns.
-- The fixed-weight price deflator measures price changes for a fixed basket of over 5,000 goods and services.

When GDP declines for two consecutive quarters or more, by definition the economy is in a recession. Meanwhile, when GDP grows too quickly, and fears of inflation arise, the Federal Reserve often attempts to stimulate the economy by raising interest rates.
Current Dollars vs. Constant Dollars
GDP is calculated both in current dollars and in constant dollars. Current Dollar GDP involves calculating economic activity in present-day dollars. This, however, makes time period comparisons difficult due to the effects of inflation. By comparison, Constant Dollar GDP factors out the impact of inflation and allows for easy comparisons by converting the value of the dollar in other time periods to present-day dollars.

GNP vs. GDP
Investors need to be mindful of the difference between Gross National Product (GNP) and Gross Domestic Product (GDP).


 Gross National Product GNP:
Gross National Product measures the total amount of goods and services that a country's citizens produce regardless of where they produce them. As a result, GNP includes such items as corporate profits that multinational firms earn in overseas markets. For example, if an American firm operates a plant in Brazil, then the profits that the firm earns would contribute to U.S. GNP.

GDP:
 

By contrast, GDP measures the total amount of goods and services that are produced within a country's geographic borders. Therefore, for GDP purposes, an American company with a plant in Brazil will actually contribute to Brazilian GDP.

Top 10 GDP Countries 2000-2050

Rank
Country Name 2000 GDP 2010 GDP 2020 GDP 2030 GDP 2040 GDP 2050 GDP
1  CHN China 1078 2998 7070 14312 26439 44453
*  EU European Union * 9395 12965 16861 21075 28323 35288
2  USA United States 9825 13271 16415 20833 27229 35165
3  IND India 469 929 2104 4935 12367 27803
4  JPN Japan 4176 4601 5221 5810 6039 6673
5  BRA Brazil 762 668 1333 2189 3740 6074
6  RUS Russia 391 847 1741 2980 4467 5870
7  UK United Kingdom 1437 1876 2285 2649 3201 3782
8  GER Germany 1875 2212 2524 2697 3147 3603
9  FRA France 1311 1622 1930 2267 2668 3148
10  ITA Italy 1078 1337 1553 1671 1788 2061

Comments

Popular posts from this blog

Factors affecting Commodity Market

Home Loan Solution for Early Birds-“STEP UP LOAN”

Company Deposits