Category Archives: Financial Vocabulary

GDP – what is it?

Gross Domestic Product(GDP) is the best way to measure a country’s economy, it includes every thing produced by all the people and the companies in the country.

download (1)Primary components of GDP are
1.Personal consumption/expenditure
2.Business Investment
3.Government spending
4.Exports-Imports

Economists use GDP to determine the size of economy at a point of time and growth of economy over a period of time. GDP measures the ‘Total market value of all ‘final’ goods and services produced in an economy in a given year’.
‘Final’ in the above definition is critical, if you consider tires given to a car manufacturer they are not considered as the final goods because in this case Car is the final goods, tire value is considered along with the value of the car. But if the same tire is used in replacement market, it is final goods hence it is considered in calculating real value of GDP.

GDP per capita: GDP per capita is a measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another because it shows the relative performance of the countries

what does increase in GDP(year on year) mean to any country? It can be any of the following.
1.Country produced more goods and services than previous years.
2.Same amount of goods and services were produced, but the prices of goods and services increased
3.combination of 1 and 2

To distinguish between 1 and 2, we need to consider the difference between Real and Nominal GDP.

Nominal vs Real GDP?
Nominal GDP is not adjusted for Inflation, while real GDP is adjusted to Inflation. Economy growth is measured by real GDP over time.
General rule of thumb is two consecutive quarters of decline in real GDP constitutes as Recession.

While GDP represents state of economy,  standard of living of the people in the country is represented by GDP per Capita. GDP per capita is gross domestic product divided by midyear population of the country. 

The Gross Domestic Product (GDP) in India was worth 2066.90 billion US dollars in 2014. The Gross Domestic Product per capita in India was last recorded at 1262.64 US dollars in 2014.

The Gross Domestic Product (GDP) in India expanded 7.50 percent in the first quarter of 2015 over the same quarter of the previous year. GDP Annual Growth Rate in India averaged percent from 1951 until 2015, reaching an all time high of 11.40 percent in the first quarter of 2010 and a record low of -5.20 percent in the fourth quarter of 1979.