Bite-sized basics: What is GDP, and how to explain it to friends and walk away looking like an economics genius?

Posted by Owun Taylor

Gross Domestic Product simply explained.

After a long day battling away at work, fighting the good fight, you get home and find your place of solitude on the sofa, relaxing and switching on the TV. Those noble news readers with pearly white teeth and perfect hair give you updates on everything that’s been going on in the mad world. In amongst the whirlwind tales of stock market rises and falls, political arguments, exchange rate rises and falls, they repeat words and acronyms you’ve heard hundreds of times before…but never really understood. A favourite of economic reporters is GDP.

Gross Domestic Product:
GDP stands for Gross Domestic Product, and it’s a way to measure the size or value of a country’s economy.

Imagine that a country is like a big shop where goods and services are bought and sold. GDP is like adding up the value of all the things that are bought and sold in that store over a specific period, usually within the year.

Good & Services:

When we talk about goods, we mean physical things like cars, clothes, food, and toys. Services, on the other hand, are things people do for others, like haircuts, doctor visits, or repairing a car. All these things have a value, and GDP measures that value.

GDP takes into account everything produced within a country’s borders, regardless of whether it is done by local businesses or foreign companies. It includes the production of both goods and services by individuals, businesses, and the government.

To calculate GDP, economists add up the value of all the goods and services produced. They consider the market prices of these items, which means the price people are willing to pay for them. The total value is usually expressed in the country’s own currency.

GDP is a useful tool because it helps us understand how well an economy is doing.

If the GDP is growing, it means the economy is getting bigger, and people are buying and selling more things. This generally indicates that people have jobs, businesses are doing well, and the country is prospering.

However:

GDP alone doesn’t tell us everything about a country’s well-being. It doesn’t capture factors like income distribution, quality of life, or environmental sustainability. It’s just one way to measure the overall economic activity in a particular country.

Governments, businesses, and economists closely monitor GDP because it helps them make decisions.

Our politicians might use GDP data to develop strategies for economic growth or to assess the impact of new policies they are thinking of bringing in. In the business world, we may use it to make investment decisions or analyse market trends.

In a simple summary:

GDP is a way to measure the value of all the goods and services produced within a country, state, or territory.
It helps us understand the current size of the economy and how well it is doing but import to remember that it doesn’t tell us everything about the well-being of me, you, and all the other people living in Australia.

Owun

Owun is the Senior Education Specialist at the Blue Wealth Property Academy and hosts The Clever Investor podcast. With an impressive background and extensive knowledge in the realm of property finance and education for well over 20 years. He is known for being able to explain the complex world of wealth creation easily.

Posted by Owun Taylor, on 17th Jul 2023