GDP measures a nation’s economic output. It is an important indicator of a country’s prosperity and offers insight into the standard of living in a country. A high GDP per capita suggests that a country is wealthier and is using its resources more efficiently. GDP also helps economists understand business cycles and forecast future economic trends.
The calculation of GDP starts with collecting data on a nation’s total output of goods and services in a given year. This information is then divided by the nation’s population to yield GDP per capita. The data is then adjusted to account for inflation so that the same amount of goods and services can be compared across years. GDP is reported by all nations and is often compared to the GDP of other countries to make international comparisons. It is commonly reported in a country’s own currency, such as the United States dollar, the Canadian dollar, Euros for European countries and Japan’s yen. A common method of making cross-country comparisons is through purchasing power parity (PPP) exchange rates.
A number of factors influence GDP, including consumer confidence, business investment and the use of special resources. For example, if an economy’s GDP rises while its population stays the same, this could mean that consumers are becoming wealthier and that businesses are investing in more efficient machinery. However, if a country’s population grows while its GDP remains flat, this might indicate that a nation is wasting its resources or inefficiently distributing its wealth.