Simplifying economy: GDP to PPP — essential terms you need to know
Aug 30, 2024
Credit: iStock
Gross Domestic Product (GDP)
GDP is a measure of the total value of goods and services produced within the borders of a country over a specific period of time. It includes goods and services produced for sale and some non-market production like education and defence services.
Credit: iStock
Gross National Product (GNP)
GNP is the total value of all goods and services created by a country's citizens and businesses, no matter where they are located.
Credit: iStock
The difference between GDP and GNP
GDP is the value of goods and services produced within a country’s borders, regardless of who owns the resources. While GNP is the value of goods and services produced by the residents of a country, regardless of where they are located.
Credit: iStock
Inflation
In simple words, inflation is an increase in the price of goods and services over time, which reduces the value of money. It means the money you have today will be valued less in the future.
Credit: iStock
Monetary Policy
Monetary policies are implemented by a country’s central bank to control the money supply which involves controlling the money supply and borrowing costs in an economy. For instance, if inflation is too high, the central bank might raise interest rates to slow things down.
Credit: iStock
Fiscal Policy
Fiscal policy is how a government uses money to influence the economy. It is mainly done by spending and taxing. For instance, if the government wants to boost the economy it might lower taxes so that people spend more.
Credit: iStock
Recession
A recession is a time period when the economic growth of a country declines significantly. It can be short-term or long-term. During a recession, people might lose their jobs and livelihoods as there is less investment and spending in the overall economy.
Credit: iStock
Real GDP
Real GDP is basically GDP adjusted for inflation. It shows the real increase in the value of goods and services, making it easier to see how much the economy is truly growing.
Credit: iStock
Nominal GDP
Nominal GDP is simply GDP in terms of current prices, without adjusting inflation.
Credit: iStock
Purchasing Power Parity (PPP)
Purchasing Power Parity is a method used to compare the value of different currencies by determining how much of each currency is needed to buy the same set of goods and services in different countries. It allows us to understand the relative value of currencies based on their actual purchasing power.
Credit: iStock