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Gross Domestic Product

Every quarter, the government releases the percentage growth of the gross domestic product (GDP). The GDP is a broad measure of all economic activity in an economy. An advanced industrialized society such as Europe, Japan, or the U.S. prefers to see GDP growth between 3 and 5 percent. Anything lower indicates that the economy is in danger of stalling. Anything higher means the economy is heating up too fast and is in danger of inflation or a sudden crash. Developing countries can grow at much higher rates, but that has risks as well. China, for example, grew more than 8 percent in 2003 and broke 9 percent in the first quarter of 2004. Rather than please China's leaders, however, these red-hot numbers made them nervous. Too much growth and too much money can set up a country for a serious fall, as had happened in Thailand. To prevent this, Chinese leaders began tightening credit, which would reduce lending and cause the economy to cool, or experience a “soft landing,” rather than crash.

Several other indicators, like the GDP, hint at economic growth. These include housing starts and retail sales. When both are high, it's genefrally considered a sign that the economy is doing well, but it may also prompt an interest rate hike.


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