Gross Domestic Product (GDP)

What is Gross Domestic Product (GDP)?

Gross domestic product (GDP) is a standard measure of a country’s economic healthEconomic IndicatorsAn economic indicator is a metric used to assess, measure, and evaluate the overall state of health of the macroeconomy. Economic indicators are often collected by a government agency or private business intelligence organization in the form of a census or survey and an indicator of its standard of living. Also, GDP can be used to 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, a comparison between countries provides a high level of accuracy. Furthermore, GDP indicates economic expansion or compressionDeflationDeflation is a decrease in the general price level of goods and services. Put another way, deflation is negative inflation. When it occurs, the value of currency grows over time. Thus, more goods and services can be purchased for the same amount of money. and the growth or decline of an economy.

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

Nominal GDP

Nominal GDP is GDP measured at current market price levels. Nominal GDP is not adjusted for inflationInflationInflation is an economic concept that refers to increases in the price level of goods over a set period of time. The rise in the price level signifies that the currency in a given economy loses purchasing power (i.e., less can be bought with the same amount of money)., 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.

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 ParityPurchasing Power ParityThe concept of Purchasing Power Parity (PPP) is used to make multilateral comparisons between the national incomes and living standards of different countries. Purchasing power is measured by the price of a specified basket of goods and services. Thus, parity between two countries implies that a unit of currency in one country will buy) 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 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 the 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.

Related Readings

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™FMVA® CertificationThe Financial Modeling & Valuation Analyst (FMVA)® accreditation is a global standard for financial analysts that covers finance, accounting, financial modeling, valuation, budgeting, forecasting, presentations, and strategy. 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 CFI resources below:

• Consumer Surplus FormulaConsumer Surplus FormulaConsumer surplus is an economic measurement to calculate the benefit (i.e., surplus) of what consumers are willing to pay for a good or service versus its market price. The consumer surplus formula is based on an economic theory of marginal utility.
• Gross National ProductGross National ProductGross National Product (GNP) is a measure of the value of all goods and services produced by a country’s residents and businesses. It estimates the value of the final products and services manufactured by a country’s residents, regardless of the production location.
• StagflationStagflationStagflation is an economic event in which the inflation rate is high, economic growth rate slows, and unemployment remains steadily high. This unfavorable combination is feared and can be a dilemma for governments since most actions designed to lower inflation may raise unemployment levels
• Supply and DemandSupply and DemandThe laws of supply and demand are microeconomic concepts that state that in efficient markets, the quantity supplied of a good and quantity demanded of that good are equal to each other. The price of that good is also determined by the point at which supply and demand are equal to each other.