Business Word for the day - GDP

Singapore GDP Growth Gross Domestic Product

Fri, 10 Dec 2021 Source: www.ghanaweb.com

In economics terms, Gross Domestic Product (GDP) is the monetary value of all finished goods and services made within a country during a specific period.

GDP provides the economic outlook and the state of affairs of a country, which is then used to estimate the size of an economy and growth rate.

GDP can be calculated in three ways, using expenditures, production, or incomes.

The calculation includes consumption (both private and public consumption), government outlays or spending, investments, additions to private inventories, paid-in construction costs, and the foreign balance of trade (Exports are added to the value and imports are subtracted).

The most important of these components that make up a country’s GDP is the foreign balance of trade.

GDP tends to increase when the total value of goods and services that domestic producers sell to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy. When this situation occurs, a country is said to have a trade surplus.

If the opposite situation occurs - thus, if the amount that domestic consumers spend on foreign products is greater than the total sum of what domestic producers can sell to foreign consumers - it is called a trade deficit.

Investopedia.com explains that in this situation the GDP of a country tends to decrease.

Even though GDP has its limitations, it serves as a tool to guide policy-makers, investors, and businesses in strategic decision-making.

Source: www.ghanaweb.com