What is GDP?

Summary

The word “GDP” stands for “Gross Domestic Product” and refers to the value of all national goods and services of a country over a period of time. This index is very important in financial markets and many analysts carefully follow the statistical trend of the GDP for their transactions.
In other words, the GDP indicates the health and probability of economic growth for a country and its national currency.

Table of Contents

Expert review of GDP index:

What is GDP?

In 1934, Simon Kuznets calculated and published the GDP index. The GDP index calculates and measures the output and production of finished goods in a country’s economy. Finished product or service means that the product or service is not part of the sales of a larger product or service

What are GDP types

Types of methods for calculating GDP

There are different calculation methods for the GDP, and if calculated correctly, all methods have the same results!

Cost calculation method

This method calculates the cost that each group incurs in the economy.

The United States Economic Analysis Organization uses the following cost calculation method and formula to calculate GDP:

GDP = Consumption (C) + Government Expenditure (G) + Investment (I) + Net Export (NX)

A consumer pays an amount called a cost to benefit from goods or services such as health services or shopping. The amount a consumer pays in an economy to use goods and services is one of the main indicators in calculating GDP.

Result calculation method

The result calculation method is the opposite of the cost calculation method, in which the total value of production in g is first calculated and then the cost of intermediate goods is deducted.

Income calculation method

In this computational method, the income obtained from all factors of production in an economy is calculated.

Relationship between GDP and the Forex market

As you have read, GDP represents the health and growth of the country’s economy, and understanding this concept, we conclude that if GDP is published higher than the previous report, the value of the national currency will increase.
And if the GDP rate decreases, we will see a weakening of the national currency!

Positive GDP index

The release of the positive GDP index increases the value of the national currency.

Negative GDP index

The release of the negative GDP index reduces the value of the national currency.

GDP and Forex

GDP Analysis for Forex Trading

The initial GDP index is published four weeks after the end of each season and the final GDP index is published three months after the end of each season at a specific time for each country.

Financial market analysts have average expectations for GDP indicators in different countries. For the United States and the US dollar, for example, experts expect annual GDP growth of 2.5% to 3.5% and conduct their long-term analyzes based on these modelings.

For Forex traders, the GDP index is a very important factor for trading analysis. They also use this index to forecast bank interest rates.

GDP growth and inflation

Different countries and their economic analysis organizations have different methods for calculating the GDP index, and we review the types of GDP in Adaas Investment Magazine.

GDP decline and recession

The recession comes with negative GDP growth for two consecutive seasons, and the central bank tries to help the economy by lowering interest rates.

GDP and economy

What are GDP types?

Nominal GDP

"Nominal GDP" is calculated using current market prices.

Real GDP

In "Real GDP", the inflation rate is also considered in the calculations and a period of one year is considered.

GDP per capital

GDP per capita is calculated on the basis of each person in the total population of the country.

GDP growth rate

The rate of economic growth in a year for each country is calculated by comparing one-fourth of the country's GDP with the previous one-fourth.

The end words

At Adaas Capital, we hope that by reading this article you are fully acquainted with the answer “What is GDP?” You can contribute to our progress by sharing the article “What is GDP Index?” Published in Adaas Investment Magazine, and by contributing your comments to help optimize this article.

 

References

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