Gross Domestic Product - GDP

GDP (Gross Domestic Product) includes market cost of all goods and services produced on the territory of state by all branches of economy purposed for consumption, accumulation or exporting for a year. The first time GDP term was brought into use in 1934 by an American economist Simon Kuznets originated from Pinsk, Belarus. In his research Kuznets made reappraisal of the US national profit from 1869 to 1935 years, and it was the first time when such detailed research on national economic activity was presented to the US Congress. Afterwards, Simon Kuznets was honored with Noble Prize for his works, whereas GDP turned to be a major figure characterizing economic conditions of any state.

Nominal and real GDP are distinguished. Nominal GDP represents cost of all goods and services expressed in prices of target year. Real GDP is calculated in prices of previous year or in prices of the year taken as basis. Relation of nominal GDP to real is called GDP deflator. Introduction of this notion allows a correct matching data for various periods of year simultaneously mitigating value of inflation.

Also it is necessary to distinguish actual and potential GDP. Actual GDP is calculated under current subemployment and demonstrates a real state of business in the economy. Potential GDP is calculated under 100% full employment and shows economic potential of state.

As a rule, GDP value is given in the US dollars or in national currency. Another option is application of Purchasing Power Balance figure with the purpose of correct comparison of GDP in different countries.

In general, GDP can be calculated with the help of a simple formula:

GDP = C + I + G + (X - M),

where

C – consumption

I – investment

G – government spending

X – export

M – import

GDP value is published every three months, but, apart from that, advance GDP is published monthly, then provisional value is announced and in one more month final GDP value is reported.

GDP data plays a significant role for market. As a rule, growth of value is positive for consolidation of national currency. However, too sharp and unexpected growth is able to put market on the alert, because can tell about coming recession.