publish2017-06-21 5:29 pm

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Why GDP Matters for Monetary Policy

Gdp Monetary Policy 2

The monetary policy is the different mechanism used by the central government to control the market and promote the economic growth. The GDP is probably the most important single indicator for the country economic situation. The ultimate goal of each world country is to increase its GDP as much as possible because it translates in more money for government plans and national state inversion.

What is GDP?

The Gross Domestic Product GDP is the sum of the total value of goods and services produce in a country during a fiscal year or calendar year. It is obtained by adding the amount of money generated by the companies, plus the industries, plus the different services, plus the consumer spending, and plus the government in each department and national plan, some include another item the difference between exported minus imported goods. With the previous data the GDP is calculated and two figures are reported the Nominal GDP and the Real GDP.

How many GDP are and what are the differences?

There are two reported GDP the Nominal GDP and the Real GDP.

A. Nominal GDP. It is reported each quarter, and it include the raw amounts, without making any financial correction or adjustment for inflation or prices changes

B. Real GDP, It is reported yearly, and it is calculated based on the previous reported year, making a correction for  inflation and Consumer Price Index adjustment to avoid reflecting any variation due to prices increase.

Why GDP Matters for Monetary Policy

·GDP is the single indicator that gives a total picture of the national economic situation

·GDP is used to measure the success or failure or current and previous implemented monetary policies

·GDP is the golden standard for comparing the economics of different countries

·GDP shows the growth rate and its speed comparing with the past and regional GDPs

·The economic size is measured by its GDP the largest economies today are China and USA, the first place changes some quarters during the year.

·GDP Growth rate is the primary indicator for the central bank to implement either an expansionary monetary policy on each occasion it is growing faster than expected or a contractionary policy when the GDP is lower than anticipated.

GDP is the Gold standard indicator for Monetary Policy

The only indicators that really matter to central banks, international financial institutions, and creditors corporations, it is the country GDP. The GDP evaluation can disclose in just minutes the total monetary policy success or failure of a state or region for the reported years.

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