You may have heard about GDP many times in the news. All you have to do is turn on the television and he will be there, going up and down, determining the country's economic situation. But what does this Gross Domestic Product really mean?

Here you will solve once and for all possible doubts about what this very important economic indicator is and what it is for. In addition, we will explain how it is determined, what it represents and how GDP relates to quality of life.

We want to show you that GDP is not just a number, but that it has everything to do with everyday life. Continue with us and check out the importance of GDP.

GDP is the acronym that represents the Gross Domestic Product, being one of the main indicators of the Brazilian economy.

Basically, it is the sum of all final goods and services produced in an economy during the period of one year. Therefore, it can be evaluated in a city, neighborhood, an economic sector (such as agriculture, for example), as well as in different periods of time, being annual, monthly or half-yearly.

The term was coined in 1930 by Simon Kuznets, a Russian economist. At the time, he used demography and statistical data to understand the impacts of population growth on productivity in the region.

The GDP works as a thermometer for the economy, defining whether it is doing well or badly. Thus, when the GDP grows, it means that the economy is good, unemployment rates are low and that the population has money in their pockets to spend. However, when the opposite happens, it means that the country is doing poorly with high unemployment rates and Brazilians without capital.

Although economic growth implies an improvement in people's living conditions, this is not a sufficient condition to define all social well-being. Therefore, the GDP cannot be seen as a measure of the level of development of a place.

Development is associated with how society distributes its fruits and consequently the positive impacts they imply. From this perspective, it is clear that, as responsible for defining whether the economy of a region is going well or not, it cannot meet the need to evaluate the development of social well-being.

For this, there is the HDI (Human Development Index) which is more comprehensive and aims to specifically assess the quality of life, longevity and education of the population.

There are several ways to calculate GDP. The easiest way to estimate it is to add up the value of all services and final products. That is, all sales made specifically to the final consumer must be computed. That is, from bread from the bakery to a daily booked in a luxurious hotel.

Now that you know where the "P" of GDP comes from, let's go to the meaning of the "I" which, according to the acronym, refers to internal, representing the area where it is being analyzed. Therefore, both national and multinational companies operating in the area are considered.

If the calculations did not consider the territory, but only the nationality, we would be talking about the GNP (Gross National Product). See the difference between the two acronyms in the next topic.

As we cannot leave it out, the origin of the “B” of the GDP is the Gross Product estimate, in this case, the calculation does not take into account the depreciation of materials. This depreciation relates to the natural aging of products, such as the need to renovate the environment, obsolescence of working materials, need for maintenance of some items, among other needs of a company that are not included in the product calculations.

This non-inclusion of depreciation in the GDP calculation happens because it is a very unstable calculation and difficult to estimate, which is why economists leave it aside. That's why it's called the inner product. Gross, but when the depreciation is estimated we have the Product Liquid.

Finally, the GDP is calculated from the subtraction of the selling price and the cost of production, as this way the items will not be double counted, artificially increasing the GDP.

There are differences between Gross Domestic Product (GDP) and Gross National Product (GNP) and now you will understand this difference.

Unlike the GDP, the GNP takes into account the productions sold by national companies also outside the country, but disregards the productions of foreign companies within the country.

The GDP, on the other hand, considers the performance of sales in the specific location, counting on multinationals and nationals, but disregarding and not accounting for the national performance in other countries.

Now that you know what it means and what it's for, it's time to think about what we can do to increase GDP. And there are some factors that have a direct impact on GDP growth, get to know some of them now.

The main factor is nothing less than consumption, because the more companies, government and citizens spend money, the market has to turn and the economy starts to “heat up”, consequently increasing the GDP.

To be clear: when you go to the grocery store and decide to spend a little more this month to enjoy some new items that just hit the shelf, other consumers are likely to do the same.

Therefore, the more people start spending, the more it guarantees enough cash for the owner of the establishment to hire another employee, for example. Thus, increasing the service of the place.

When consumers have enough purchasing power and decide to spend at a local grocery store, this act generates an increase in the local GDP. It is possible to observe more consumer purchasing power and consequently a better quality of life.

But after all, what exactly does GDP impact on our lives? It is important to know that GDP variations have direct consequences on inflation and interest rates, the Selic. Do you want something that impacts your life more than the prices of the products you buy? Understand now how this pricing works.

If the country's conditions are favorable and the GDP rises, it is likely that there will also be an increase in product prices on the market, the famous inflation. In this case, the Central Bank may choose to increase interest rates to contain inflationary pressures and curb exacerbated consumption.

But if the GDP shows a drop, consequently consumption will also fall (because there will be less people with money to spend). And in this case the opposite happens, which is the Central Bank to lower interest rates so that more people have access to credit. This happens as a stimulus for more people to become able to consume in the market.

Another important factor is that with GDP rising, the time to invest is right. Therefore, more and more investors are starting to bet here, being a good time to see their finances rise.

So that you leave this article with an understanding of everything that GDP influences in the market and in your life, we have selected some concepts that may be related to GDP, but that you probably do not know.

See below the main expressions that have everything to do with GDP:

Every year, the Brazilian Institute of Geography and Statistics (IBGE) publishes the result of the Brazilian Gross Domestic Product. Being the year 2020, with catalysts such as the Covid-19 virus pandemic that helped to plummet Brazil's GDP, it was the year with the biggest fall in history since the beginning of the current historical series of the IBGE (started in 1996).

Per capita GDP also had a significant historical drop of 4.8%, industry dropped 3.5% and services, 4.5%. The growth is due only to agriculture, which included an increase of 2%.

So, this result is due to the effect of the Covid-19 pandemic, in a scenario in which several economic activities were partially or completely paralyzed for the safety of the population. Thus, also stopping the production of goods, generating a significant effect on the Brazilian GDP.

Even with the easing of social distance, many people remained afraid to consume mainly some services due to the risk of causing crowds. Thus, further affecting the economy.

It is possible to observe in practice the impact it has on a society when the economy stops moving and starts to cool down. Unemployment in 2020, for example, also broke a record, reaching around 13.4 million Brazilians. The average unemployment rate being 13.5%, the highest ever recorded since the beginning of the historical series in 2012.

The Brazilian GDP had been growing shyly from 2017 to 2019, but unfortunately it had an abrupt drop, taking Brazil to a level similar to that of the Brazilian economy between the end of 2018 and the beginning of 2019.

This sector represents around 70% of GDP and was the most affected due to the restrictive measures. The subcategory “other activities and services” was the most affected, and is the one that includes restaurants, gyms and hotels, with a fall of -12.1%.

This segment grew its share annually in 2010, representing at that time 15.7% of GDP. In 2019, it had a share of 18%, but in 2020 there was a significant drop, decreasing its share in GDP to 16.2%.

This article is full of information, isn't it? To make it a little easier for you, let's make a brief summary for you to fix the most important information:

GDP measures the economic activity of a region through calculations that relate supply and demand for goods and services.

It is important to highlight that the GDP result is an important factor for calculating the minimum wage in Brazil.

That is why the GDP is called the thermometer of the economy, because the higher the index in a country, the greater its economic activity. And the more economic activity in the country, the more there are sales, purchases, investments and, most importantly, money in Brazilians' pockets.