Gross Domestic Product
(GDP)
Article courtesy of FinancialContent
By Chris Stallman
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The stock
market is something that is greatly influenced by the state of the
economy. After all, it acts as a gauge to the economy. When a nation's
economy is doing well, its stock market usually mirrors this economic
growth. With this in mind, understanding the economy, or at least
the basics, is important.
The Gross Domestic Product (GDP) is one economic number
that is key to many investors and economists. It is a number that
gives people an idea of the state of a country's economy.
What is the GDP?
The GDP is an
economic number that tells us the total value of all the final goods
and services produced by resources located in the country you live
in during a period of one year. So the 2004 US GDP would be
the value of all the goods produced in the US in 2004.
The GDP is seen as one of the most important economic
numbers because it gives economists a rough idea of how fast the
economy is growing. For example, the GDP for the United States rose
4.5% in 1999 which shows that our domestic economy rose during
that year.
The GDP
is also important for determining the domestic economic policies
and monetary policies, such as the Federal Reserve's position
on interest rates. By examining the GDP's of other countries,
we can also determine approximately how much we should give them
in aid.
What Makes up the GDP?
The GDP is figured
by taking the total value of all the final goods and services of
one country and adding them up. The GDP doesn't account for
intermediate goods because the value would be counted twice.
The GDP is composed of three major groups. The first
is consumer goods, which account for nearly two-thirds of the total
GDP, which include durable goods (cars, refrigerators, etc...),
nondurable goods (clothes, food, etc...), and services. It is also
composed of investment goods such as new plants and equipment, housing,
and business inventory. The last major group that makes up the GDP
is the government sector which includes the production of public
goods and services.
What Are Some Problems with
the GDP?
1.) Doesn't measure per
capita to determine the most accurate standard of living
2.) Doesn't measure how the
goods are distributed to the population
3.) Doesn't allow for changing
price levels
4.) Doesn't include unpaid
household work
5.) Doesn't include the barter
system, which is still used by many undeveloped countries
6.) Doesn't measure the quality
of items produced
The GDP has a few small flaws in it but it is, overall,
a very good number to look at when you're determining the state
of the economy. If you are interested in finding the latest Gross
Domestic Product figures, you can visit the Bureau of Economic Analysis'
website at http://www.bea.doc.gov/
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