The word “GDP” stands for “Gross Domestic Product” and refers to the value of all national goods and services of a country over a period of time. This index is very important in financial markets and many analysts carefully follow the statistical trend of the GDP for their transactions.
In other words, the GDP indicates the health and probability of economic growth for a country and its national currency.
Table of Contents
Expert review of GDP index:
What is GDP?
In 1934, Simon Kuznets calculated and published the GDP index. The GDP index calculates and measures the output and production of finished goods in a country’s economy. Finished product or service means that the product or service is not part of the sales of a larger product or service
Types of methods for calculating GDP
There are different calculation methods for the GDP, and if calculated correctly, all methods have the same results!
Cost calculation method
This method calculates the cost that each group incurs in the economy.
The United States Economic Analysis Organization uses the following cost calculation method and formula to calculate GDP:
GDP = Consumption (C) + Government Expenditure (G) + Investment (I) + Net Export (NX)
A consumer pays an amount called a cost to benefit from goods or services such as health services or shopping. The amount a consumer pays in an economy to use goods and services is one of the main indicators in calculating GDP.
Result calculation method
The result calculation method is the opposite of the cost calculation method, in which the total value of production in g is first calculated and then the cost of intermediate goods is deducted.
Income calculation method
In this computational method, the income obtained from all factors of production in an economy is calculated.
Relationship between GDP and the Forex market
As you have read, GDP represents the health and growth of the country’s economy, and understanding this concept, we conclude that if GDP is published higher than the previous report, the value of the national currency will increase.
And if the GDP rate decreases, we will see a weakening of the national currency!
Positive GDP index
The release of the positive GDP index increases the value of the national currency.
Negative GDP index
The release of the negative GDP index reduces the value of the national currency.
GDP Analysis for Forex Trading
The initial GDP index is published four weeks after the end of each season and the final GDP index is published three months after the end of each season at a specific time for each country.
Financial market analysts have average expectations for GDP indicators in different countries. For the United States and the US dollar, for example, experts expect annual GDP growth of 2.5% to 3.5% and conduct their long-term analyzes based on these modelings.
For Forex traders, the GDP index is a very important factor for trading analysis. They also use this index to forecast bank interest rates.
GDP growth and inflation
Different countries and their economic analysis organizations have different methods for calculating the GDP index, and we review the types of GDP in Adaas Investment Magazine.
GDP decline and recession
The recession comes with negative GDP growth for two consecutive seasons, and the central bank tries to help the economy by lowering interest rates.
What are GDP types?
Nominal GDP
“Nominal GDP” is calculated using current market prices.
Real GDP
In “Real GDP”, the inflation rate is also considered in the calculations and a period of one year is considered.
GDP per capital
GDP per capita is calculated on the basis of each person in the total population of the country.
GDP growth rate
The rate of economic growth in a year for each country is calculated by comparing one-fourth of the country’s GDP with the previous one-fourth.
The end words
At Adaas Capital, we hope that by reading this article you are fully acquainted with the answer “What is GDP?” You can contribute to our progress by sharing the article “What is GDP Index?” Published in Adaas Investment Magazine, and by contributing your comments to help optimize this article.
References
- Investopedia.com
- Wikipedia.org
- GDP: A Brief But Affectionate History – Revised and Expanded Edition by Diane Coyle
FAQ
What is the GDP index?
The word “GDP” stands for “Gross Domestic Product” and refers to the value of all national goods and services of a country over a period of time.
What are the types of GDP indicators?
– Nominal GDP
– Real GDP
– GDP per capita
– GDP growth rate
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