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Gross Domestic Product GDP

Gross domestic product is defined as the market value of all the finished goods and services produced in a country during a certain period of time. Only include finished goods and services that is anything sold directly to the consumer.

Real GDP:

To be able to make reasonable comparison of GDP over time, we must adjust for inflation. For example, if prices are doubled over one year, then GDP will double even though exactly the same goods and services are produced as the year before. To eliminate the effect of inflation we provide GDP by a price index and we define real GDP as GDP divided by price index.

Growth: GDP-growth we mean the percentage change in (nominal) GDP over a specific period of time. Real GDP growth is defined as the percentage change in real GDP. The real growth tells us how much the economy has grown during a particular period when the effect of inflation is removed.

Purchasing Power: One problem in using the exchange rate when comparing GDP per capital between countries is that is fluctuates quite a lot. A way of avoiding dependence on the exchange rate is to use purchasing power.

GDP is a flow!

GDP is a flow variable, and not a stock variable. By a flow variable we mean a variable that is measured is something per unit of time. GDP being a flow is not a measure of total wealth of a country but a measure of “income” of the country during a certain period of time.

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