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From Wikipedia:

GDP

Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly).


National net wealth

National net wealth, is the total sum value of monetary assets minus liabilities of a given nation. It refers to the total value of wealth possessed by the citizens of a nation at a set point in time.


Being a super neofite (to say the least) in Economics my very naive question is: why is GDP always used in place of National net wealth to denote the economical superiority of a country versus another?

To put it in the way I interpret it: how a country producing 10 cars per year is economically superior to another country not producing any car at all but holding a giant reserve of gold (that could be employed to build 1000 cars factories the next day) ?

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Your first country producing cars (possibly after receiving investment or loans from others) has an economy, and if it is selling cars then it can buy other things in exchange for cars. It could even buy some gold. So it has a degree of economic power, but so too do its investors, suppliers and customers.

Your second country sitting on a pot of gold and doing nothing (it may as well have left the gold in the ground) has no economy and no economic power until it changes that position. For example it cannot buy more gold as it has nothing to use to pay for it except gold. Only after it has sold gold for something useful or productive might things change.

By the way, GDP (on the production measure) is actually the market value of all goods and services produced, less the value of intermediate goods and services consumed. In a closed economy with no international trade, this is equal to all final goods and services produced (adjusted for the change in stocks of intermediate goods and services) but in an open economy in international supply chains it can be very different.

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  • $\begingroup$ I understand, but going with extremes, let's think it's not gold but dollars: our country has thousands of billions of dollars stocked in its central bank but its production of goods and services is almost 0. GDP would not account for that financial power and would still consider the country producing 10 cars a superior economy... so how can GDP be reliable to this extent? $\endgroup$ – jj_ Aug 3 '16 at 16:09
  • $\begingroup$ Your country sitting on a stack of dollars still has no economic impact until it uses those dollars somehow, similar to the country sitting on a pile of gold. Wealth is irrelevant unless it is used for investment to generate an income or for consumption, and it is the flows of income and expenditure which have an economic impact rather than the stock of assets in themselves. The stock of assets has its impact indirectly by enabling greater possibilities for flows. $\endgroup$ – Henry Aug 3 '16 at 17:30
  • $\begingroup$ I understand all the academic talk and definitions, but still.. a country with thousands of billions of dollars would be more powerful than a country with 10 cars, and GDP doesn't account for that... I am not saying that the stock of assets necessarily identifies with economical power, but then neither does GDP if it does not account for the stock of assets too. Couldn't a better indicator be GDP + assets then? Why not? Thank you! $\endgroup$ – jj_ Aug 4 '16 at 6:16

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