Gross Domestic Product (GDP) is defined and the sale of final
goods produced within a country’s borders over a specified time-frame.
GDP = C + I + G + NX
Where, C = Consumption; I = Investment; G = Government Spending, and; NX = Net Exports (Exports – Imports).
Real GDP accounts for inflation and fluctuations within our economy.
Nominal GDP is the dollar amount assignment to the sale of final
goods and services within our countries borders, or it can be written
Σ = P (Price) * Q (Quantity)
GDP is used as a key economic indicator as it provides a bird’s eye
view of our economy and GDP is used to measure one country against
others. GDP provides an economic synopsis of a country.
GDP follows our country’s business cycle; for example, during an
expansionary phase of the business cycle in which interest rates and
inflation are at higher levels it would be undesirable to purchase large
ticket items. Whereas, during a recessionary phase of the business
cycle in which interest rates and inflation are lower levels would be
the best time to purchase large ticket items.
GDP does not account for the following items:
- Leisure time
- Goods sold second hand
- Domestic production
- Goods and services sold on the black market
Human Development Index (HDI) is used to measure the social aspects
of domestic consumers. The HDI measure social factors such as life
expectancies, per capita income, and levels of education. One can view
GDP as the economic indicator looking at our economy and, the HDI at a
lower level by looking at the social well-being of domestic consumers.