Tuesday 24 January 2017

What is GDP - and what is it used for?

Published 13/07/2016 | 02:30

GDP is also the international benchmark for the health of the economy. Everything from how much we owe, to how much we can invest, is measured against it. Stock photo: Irochka - Fotolia
GDP is also the international benchmark for the health of the economy. Everything from how much we owe, to how much we can invest, is measured against it. Stock photo: Irochka - Fotolia

GDP, or Gross Domestic Product, is one of the primary measures used to gauge the health of an economy.

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It essentially captures the state of a nation's economy in one number.

If that number is above zero, that means the economy has grown. If it is below zero, it means the economy has contracted.

The Central Statistics Office defines GDP as the total output of the economy in a period, ie, the value of work done by employees, companies and self-employed people.

GDP is also the international benchmark for the health of the economy. Everything from how much we owe, to how much we can invest, is measured against it. For example, you'll often hear people talk about a country's debt-to-GDP ratio. That is the ratio of how much a country owes versus the growth of its economy.

In Ireland's case, GDP is often distorted because it includes the activities of multinationals, which do not always reflect the activity of the economy more broadly.

Irish Independent

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