What is Gross Domestic Product and Why should I Care?

This is how investors compare national economies around the world. They use the Gross National Product (GNP). If a GNP of a country is rising far faster than the United States then you may want to look at buying investments that represent companies in that country. The basic formula for domestic output combines all the different areas in which money is spent within that country, and then combining them to find the total output. The expenditure approach is basically an output accounting method with a calculation that looks like this;

GDP = C + I + G + (X - M)

Where:C = household consumption expenditures / personal consumption expenditures
I = gross private domestic investment
G = government consumption and gross investment expenditures
X = gross exports of goods and services
M = gross imports of goods and services

Note: (X - M) is often written as XN, which stands for "net exports"

The Gross National Product of the United States is five times greater than China. But China’s GNP is growing greater than 10% per year recently while the United State is growing at 2% per year.

But China is showing signs of slowing. That means that investors just getting onboard in China may be looking at a Chinese Stock Market Crash at worst or a Stock Market Decline at best soon. The same thing happened about 90 years ago when the United States GNP showed signs of slowing just before the Stock Market Crash of 1929 and the Great Depression started.

This is how you can tell if your foreign stocks or mutual funds are about to prosper or crash. Next we will look further into this depression and how it is related to the Depression of the 1930s.