If you are an investor or anybody from the background of finance must know about the gross domestic product (GDP). It is like a scorecard of the country’s economic health which aggregately measures total economic production for a country. Or you can say that it is an indicator of economic performance and a tool of policy-making. By recognizing its importance, it was believed that it is a tool to compare the living-standards among different countries, although GDP was not developed for such reasons.
So, what’s this economic calendar is exactly used for?
If you are a stock market trader or market investor then you must be following specific economic events and major financial announcements through the economic calendar including the gross domestic product (GDP). Through which we have the idea of the total output of all goods and services within the respective economy. These aggregate figures usually release on the quarterly or yearly basis.
GDP Components & Calculation
Since GDP represents the total market value of all goods and services produced within a period of time, there are different ways to calculate the GDP like by production approach, by type approach, and by final demand approach which measures the activities such as consumption and investment across different industries.
In here we would discuss the demand approach which is also known as Landerfeld, Seskin & Fraumeni 2008:197 can be shown as:
GDP = C + I + G + (X – M)
‘C’ is Consumption
‘I’ is Investment
‘G’ is Government
‘X’ is Exports
‘M’ is Imports
These are the components as follows:
Consumption (C): It is a value of all consumer spending within an economy.
Investment (I): It is a value of all the country’s investment.
Government (G): It is the value of the respective governments spending expect the welfare spending.
Exports (X): the Overall value of nation’s total exports.
Imports (M): the Overall value of nation’s total imports.
The gross domestic product (GDP) growth rate is to use in measuring a nation’s GDP by comparing the current level of GDP to the preceding year.
Nominal GDP is the measurement of raw data. Means, it records the final market value of all goods and services within an economy at current levels of inflation.
However, the real GDP measures the final value of all goods and services within an economy, adjusted for inflation. As a result, the real GDP is considered as the better indicator of economic growth because of its main focus in measuring production.
GDP per Capita
It is a metric act as an indicator of living standards and measures GDP per person. So, to calculate an individual basis, one can simply divide the overall GDP within any nation by its total number of population.
Final Thoughts: –
As a main economic indicator, the GDP has been used by many investors to see the growth rate as an asset allocation decision. By this, one can compare the economies of different countries to get informed decision on asset allocation.
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