Gross Domestic Product (GDP)

The total value of all products or services produced within a country in a one year period

Gross domestic product or GDP measures the market value of the goods and services produced in a country. GDP is often measured yearly, but it can also be measured in a quarterly basis. GDP gives hindsight into the economy of a nation. the size of the economy and its growth rate. This information can help investors, policy makers and the government in making strategic decisions.

There are two ways of measuring GDP, these are Nominal GDP and Real GDP. Nominal GDP is GDP calculated while taking into consideration the inflation in prices of commodity. That is, the current prices of the goods are used in the calculating the GDP.

Real GDP on the other hand does not take the prices of the commodity into consideration. Hence, it is more concerned with the volume of goods and services produced within the time period. Real GDP is considered a more accurate measure of the economic performance of a country and is often lower than Nominal GDP.

GDP can also be reported as GDP per Capita which is the GDP per person or the economic output per person. The higher the value, the more prosperous a nation is. GDP growth rate is another important financial metric that measures the year-to-year changes in a nation's GDP. This can be used to determine how fast the economy of a nation is growing.

GDP can be calculated using the formulas:

GDP = C + G + I + NX (where C= private consumption, G = Government expenses, I = Gross Investments, NX = Net exports) - (Expenditure Approach)

GDP = Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income - (Income Approach)

‍