The Gross Domestic Product (GDP) is the set of wealth generated in a country. It is an economic index that encompasses the global calculation of all economic activities. It is the sum of several factors: the national consumption of durable and non-durable goods, capital investments , public administration expenses and the trade balance (difference between a country’s imports and exports).
General considerations on GDP
The economic data provided by GDP is an important measure for the national economy . If we think about the revenues of a company, part of it is destined to workers’ salaries, another part is destined to the entrepreneur and the other to the banks in the form of interest. In other words, when a company buys a product, it usually gets economic compensation after selling that product.
It is a global measure that makes it possible to understand the income level of all citizens. Therefore, GDP represents the ability of citizens to generate revenue.
Although It is an economic index, it is also used as a parameter to establish the general well-being of a nation‘s citizens, carried out through the Human Development Index or HDI (the HDI includes GDP, in addition to other indicators related to health and to education ).
Nominal and real GDP and GDP per capita
It is a macroeconomic index that has two implicit concepts: nominal and real GDP. The first does not calculate the effect of the inflation rate on the economy , while the second includes the inflation rate. This difference is important, as the real GDP is precisely what reflects the direction of a country’s economy .
The GDP per capita is the result of dividing the total wealth of a country between the number of inhabitants. This value is established as an average value for the population as a whole and does not express existing inequalities (a large number of people can have a GDP per capita below the national average). Finally, it is worth remembering a general criterion: the more a currency is devalued, the lower will be the GDP per capita; while the more a currency is valued, the richer the country will be in terms of GDP per capita.