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Gross Domestic Product (GDP)

A standard measure of a country’s economic health and an indicator of its standard of living

What is Gross Domestic Product (GDP)?

Gross domestic product (GDP) is a standard measure of a country’s economic health and an indicator of its standard of living. Also, GDP can help compare the productivity levels between different countries.

The biggest advantage of GDP is that calculations of the measure are fairly uniform from country to country. Thus, the comparison between the countries provides a high level of accuracy. Furthermore, GDP indicates economic expansion or compression and determines the growth or decline of the economy.

Different organizations such as the World Bank, the United Nations, and International Monetary Fund collect and publish data on GDP estimates in all countries.

 

Nominal GDP

Nominal GDP is a GDP measured at current market price levels. Nominal GDP is not adjusted to inflation, so it is likely that the figures below are higher than real GDP estimates. GDP estimates were published by International Monetary Fund in June 2018.

 

Nominal Gross Domestic Product (GDP)
Figure 1. Nominal GDP (in US$ trillion)

 

GDP per Capita (PPP)

GDP per capita is a measure of a country’s total output calculated by taking its GDP for a given period (usually, one year) and dividing the figure by its average total population for the period. Per capita GDP is commonly used as an indicator of standards of living, as well as a measure of the productivity of the country’s workforce. GDP per capita (at Purchasing Power Parity) is determined based on purchasing power parity (PPP) calculations. PPP allows comparing the standard of living and incomes of different countries, taking into consideration price levels in these countries.

The GDP per capita (PPP) figures below were published by International Monetary Fund in 2017.

 

GDP per Capita (PPP)
Figure 2. GDP per Capita (PPP) (in US$)

 

GDP per Hour Worked

GDP per hour worked is an indicator of the country’s labor productivity. It measures how efficiently labor is combined with other factors and used in production process. GDP per hour worked is calculated as real output per unit of labor input (measured by the total number of hours worked).

The following data were published by the Organization for Economic Co-operation and Development (OECD) in 2015.

 

GDP per Hour Worked
Figure 3. GDP per hour worked (in US$)

 

Related Readings

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Consumer Surplus Formula
  • Gross National Product
  • Stagflation
  • Supply and Demand

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