Harley Hahn - Economics Explained - Understanding Gross Domestic Product (GDP)

Money and
Economics

Understanding Gross Domestic Product

A Few Quick Examples

Before we get into the technical details, let's take a look at the actual values for the GDPs I mentioned in the previous section. The numbers I will show you are estimates in U.S. dollars and are based on statistics for 2012 (the most current year, as I write this, for which reliable numbers are readily available). To start, let's look at the growth of the U.S. economy from 2011 to 2012.

In 2011, the GDP of the United States was $15.07 trillion. In 2012, the U.S. GDP was $15.68 trillion. Let's subtract the first number from the second:

$15.68 trillion - $15.07 trillion = $609 billion:

This shows us that the U.S. gross domestic product grew by $609 billion, which is an increase of 4 percent. Thus, we can say that, from 2011 to 2012, the U.S. economy grew by 4 percent.

Now, let us compare the United States economy to the Canadian economy. In 2012, the U.S. GDP was $15.68 trillion, while the Canadian GDP was $1.82 trillion. Let's divide the U.S. GDP by the Canadian GDP:

15.68 / 1.82 = 8.6

This shows is that the U.S. economy is about 8.6 times the size of the Canadian economy. Conversely, the Canadian economy is 1/8.6 (11.6%) the size of the U.S. economy.

Finally, let us compare the economy of China to the economy of the European Union. (The European Union, or EU, is an economic and political union of 28 different countries.) This is an interesting comparison, because both China and the EU are very large geographically. China, however, has the largest population of any country in the world, about 1.35 billion people, where the EU has a population of only 0.50 billion (500 million) people.

Before we start, let's compare the population of China to the population of the EU:

1.35 / 0.50 = 2.7

As you can see, China has 2.7 times the population of the EU.

Now, in 2012, the Chinese GDP was $8.23 trillion, and the EU GDP was $16.58 trillion. To see how they compare, let's divide the EU GDP by the Chinese GDP:

$16.58 trillion / $8.23 trillion = 2.01

This shows us that the economy of the EU is a bit more than twice the size of the economy of China, even though the EU has a much smaller population. Thus, we can see that, economically, the European Union is far more productive than China. Specifically, in 2012, the EU produced more than twice the value of goods and services than did China, even though China has 2.7 times as many people as the EU.

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