EXPLAINED

Gross domestic product

  • 28 November 2019
  • 1 minute

Gross domestic product (GDP) is the most common method used to measure a country’s economy. It represents the market value of everything produced by the people and companies in that country. ‘Nominal’ GDP just measures price increases while ‘real’ GDP strips out the effects of inflation. For this reason real GDP is the most commonly used measure. GDP per capita divides GDP by the number of people in the country, and can provide an indication of a country’s standard of living.

The GDP growth rate is the percentage increase in GDP from quarter to quarter or year to year; it indicates how quickly an economy is growing. If an economy produces less than the previous quarter, the growth rate is negative. Two consecutive negative readings signal a recession. A big change in GDP usually has a significant effect on the stock market as it tends to signal lower corporate earnings, resulting in lower share prices.

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