Gross Domestic Product (GDP) is the value of goods and services produced by a country over a period of time. Potential GDP is the maximum possible output, while real GDP is the actual value produced. The difference between potential and actual GDP is the GDP gap, which indicates economic health. Real GDP can also be used to determine a country’s standard of living through GDP per capita.
A country’s gross domestic product (GDP) is the aggregate value of all goods and services produced by and within a country over a given period of time. Generally, it is calculated on an annual basis. A country’s potential GDP is the ideal or maximum possible GDP for that country if unemployment is at its lowest and all sectors, offices and services are operating at maximum possible output. A country’s real GDP is the real or real value of all the goods and services it produces. Real and potential GDP are often compared to produce an indicator of a country’s relative economic health.
Economists use different methods to calculate a country’s GDP, but the differences are just variations on adding separate components, and each method will result in very similar numbers. Real and potential GDP are used to produce an indicator of a country’s relative economic conditions. The difference between potential and actual GDP is the GDP or output gap and is found by comparing potential to actual GDP.
In times of economic boom, real GDP can exceed potential GDP. This is due to a number of factors, mainly international demand for that country’s goods and services, which increases their value. Unemployment is at its lowest and business and industry are operating at or even above what are generally considered peak levels due to overtime hours and improvements in production.
During times of economic recession or depression, actual GDP will be less than potential GDP. This is generally due to the fact that, in such economic conditions, unemployment is higher, which means that consumers spend less and that companies produce fewer goods and services. The greater the gap between the two GDP figures, the greater the boom or recession. The annual growth rate of real GDP can be another indicator of economic health.
Real GDP, while often used as a primary indicator of a country’s relative economic health, can also be used to derive many other types of information. By comparing this figure to the population, for example, it can be used to determine the relative standard of living for a particular country. This figure is called GDP per capita. The higher the real GDP and the lower the population, the higher the per capita GDP will be, implying a higher standard of living.
Protect your devices with Threat Protection by NordVPN
