Gross Domestic product

The best way to understand a country's economy is by looking at its Gross Domestic Product (GDP). This economic indicator measures the country's total output. This includes everything produced by all the people and all the companies in the country.

If you want to compare GDP between countries, keep in mind some countries have a large economic output because they have so many people. To get a more accurate picture, it's helpful to use GDP per capita. This divide GDP by the number of people, and shows the real productivity of the population.

To compare GDP from one year to another, it's important to take out the effects of inflation. The GDP growth rate is the percent increase in GDP from quarter to quarter.

Investors look at the GDP growth rate to see if the economy is changing rapidly so they can adjust their asset allocation. In addition, investors compare country GDP growth rates to decide where the best opportunities are.

Declining GDP usually leads to layoffs and unemployment, but it can take several months. Declining GDP means business revenues are down.

GDP represents the total dollar value of all goods and services produced over a specific time period. In short, it's everything produced by people and businesses, including salaries of workers.

Usually, GDP is a comparison to the previous quarter or year. For example, if the second quarter GDP is up 3 ,percent this means that the economy has grown by 3 percent over the first quarter.

nominal GDP does not take into account inflation, and real GDP does. But it is an important distinction because this is why some GDP reports get revised.

Nominal GDP measures the value of output during a given quarter or year using the prices of that time period. But the general level of prices can rise due to inflation, leading to an increase in nominal GDP even if the volume of goods and services produced is unchanged. However, the nominal GDP figures won't reflect the increase in prices. This is where real GDP comes in.

If GDP is slowing down, or is negative, it can lead to fears of a recession which means layoffs and unemployment and declining business revenues and consumer spending.

Investors look at GDP growth to see if the economy is changing rapidly so they can adjust their asset allocation. A bad economy usually means lower profits for companies, which in turn means lower stock prices for some firms.

The GDP can help determine whether someone might invest in a mutual fund or stock because the health care industry is growing, versus a fund or stock that focuses on technology, which the GDP might say is slowing down.

Investors can also compare country GDP growth rates to decide where the best opportunities are for foreign investment. Most investors like to purchase shares of companies that are in rapidly growing countries.

Gross Domestic Product is the value of a country's overall output of goods and services (typically during one fiscal year) at market prices, excluding net income from abroad.

GDP measures the monetary value of final goods and services—that is, those that are bought by the final user—produced in a country in a given period of time (say a quarter or a year).