👨🎓 How economic growth is measured
👨🎓 How economic growth is measured
**5/52** Macro Mornings Education
New here? This is part of a 52-week series on macroeconomics designed to build your knowledge step by step. Feel free to catch up on previous emails here if you'd like to start from the beginning!
Hi everyone,
In our last email, we discussed the economic cycle and its impact on the economy.
Now, let’s delve into one of the most critical measures of economic performance - Gross Domestic Product (GDP).
GDP is the total value of all goods and services produced within a country’s borders over a specific period, usually a year or a quarter.
It’s the most commonly used indicator to gauge the health of an economy.
When GDP is growing, it means the economy is expanding, which is generally a good sign for businesses and consumers alike.
There are three main ways to calculate GDP:
The Production Approach: Adds up the value of output produced by every business within the economy.
The Income Approach: Adds up all the incomes earned by individuals and businesses in the economy.
The Expenditure Approach: Adds up all the spending on final goods and services within the economy. This is the most common method.
Let’s look at an example: Imagine a small country where the GDP is $500 billion.
This figure represents the total value of all goods and services produced in that country over the year.
If the GDP grows to $525 billion the next year, the economy has grown by 5%.
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Why does this matter to you?
Because GDP growth is directly linked to job creation, income levels, and investment opportunities.
If the economy is growing, companies are likely to hire more workers, which could mean more job opportunities and higher wages.
Conversely, if GDP is shrinking, it might signal a recession, and you may need to be more cautious with your investments and spending.
Understanding GDP and its trends can help you make informed decisions, whether it’s deciding to invest in the stock market, start a business, or even make a significant purchase like a home.
Next time, we’ll explore inflation and deflation - two sides of the same coin that can have a profound impact on your finances.
Alessandro
Founder of Macro Mornings
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