GDP = What is it?

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Last Updated: Saturday, 15 July 2023 03:00

Published: Wednesday, 26 August 2020 06:52

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GDP = Gross Domestic Product. Now you know it !!

We hear this term so much in everyday life, yet I knew nothing about it. So, started reserahing about it to find out what is it, and if it has any relevance at all?

Wages and salaries: If we add up everyone's wages and salaries in a given year that may give us some idea of how much more money are people making every year, compared to previous year. However ieven if a person makes more money this year than last year, it doesn't mean much, unless with his increased paycheck, he could buy more things.

Let's say with $100 in wages last year, a person was able to but 20 kgs of rice (at $5/kg). This year, let's say he made $110, but could still but only 20kg of rice, then he didn't really make any more money, since he could still but the same amount of rice as last year (and nothing more since price of rice this year is $5.50/kg).

Historical GDP for each country can be found here: https://data.oecd.org/gdp/gross-domestic-product-gdp.htm

Total GDP =$80T, USA=$20T, China=$12T, Japan=$5T, Germany=$4T. Next is India, UK, France and Brazil. Just top 15 countries, with 50% of world population account for 75% of world GDP. GDP grows by rate of 3% per year. From $1.4T in 1960, it has grown 50 fold in last 50 years. No matter which part of world you live, you need to spend about $1K/year on your food and basic supplies to survive. So, 8B people would imply a minimum of $8T in GDP. Of course, top 10% of the world spend more than that on a phone every year, so rest of the GDP comes from those rich people. About 2.5B people in world are very poor, do not get enough to eat and are malnourished. 70% of world population lives on less than $10/day. Only 7% or 500M people live on > $50/day. Most of these rich people are in USA, Canada, UK, Australia and western European countries.

Usually countries with high population also have large GDP. Since GDP is closely tied to increasing population (more people, more consumption, more GDP), countries with fast increase in population will have higher GDP growth every year.

USA GDP:

USA GDP data is more reliable than world GDP data. And since we'll be looking at US economy data in more detail, it's better to look at USA GDP. I'll mostly be talking about nominal GFP and not real GDP.

Nominal GDP = GDP as in current US dollars

Real GDP = Nominal GDP - Inflation (For this we consider some particular year as a baseline, and then compare real GDP compared to that year).

US nominal GDP: https://fred.stlouisfed.org/series/NGDPNSAXDCUSQ