Glossary – Gross Domestic Product (GDP)

Definition

The monetary value of all final goods and services produced within a country over a certain period of time (most commonly a year).

Example

Assume a country produces 5 cars (market price per unit: 2000$) and 4 motorcycles (market price per unit: 1000$). To keep things simple, there is no further production in the economy. 
Since GDP is defined as the monetary value of all final goods, we need to multiply the amount of cars and motorcycles with the respective market prices. This will result in a GDP of 14’000$ (5*2000 + 4*1000).

Relevance

GDP is a measure for economic activity, thus it allows to compare the economic performance of a country with other countries or over time. Therefore GDP is essential for policy makers, because it helps to take appropriate and justified decisions to support the economy when necessary.

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