What is GDP?

What is GDP?

GDP are initials that are used in place of writing out ‘Gross Domestic Product’.

An annual gross domestic product for a country is the total sum of the financial value of all created and manufactured goods along with services produced in one nation that are sold on the home and world markets during a one year time period.

The term ‘Gross’ is the total products that are created, produced, and sold no matter their final use whether consumed, for inventory, or replacements. All sales are added to the total gross. 

The term ‘Domestic’ designates that the geographical location where the products and services are created or produced are inside the country’s national borders. Regardless of where the owners of a factory or business are located in the world the location of the production is where the economic activity is credited to. 

The term ‘Product’ represents the final goods produced or services provided that are sold on the global markets to produce receipts.

Items that are not included in GDP numbers:

  1. Unpaid labor through family, friends, or volunteer work. 
  2. Employees paid ‘under the table’ to avoid income taxes. 
  3. Work done in exchange for things besides money. 
  4. Goods and services created for friends, family, and donations.
  5. Goods and services that are exchanged through bartering, 
  6. Illegal sales on the black market to avoid taxes. 
  7. Illegal drug sales. 
  8. Criminal services. 
  9. Illegal prostitution. 
  10. Wire transfers, money transfers, and crypto currency transfers.
  11. Sales of used items on the secondary market. 
  12. Production of goods used in the supply chain before final receipts of sales. 

The Nominal GDP is the current value of total output at today’s current monetary value with no adjustment for inflation. 

The ‘Real’ GDP is the value of today’s total output but adjusted based on inflation or deflation to determine if the quantity of production has really increased/decreased or if it is is just a result of changes in currency valuation. The ‘Real’ GDP is the number commonly used to figure the rate of  GDP growth in a country. 

GDP is the most common measure used for macro economic activity and the health of the economy.