Loan-to-Value (LTV) Ratio – What It Is & How It Affects Your Mortgage Rate

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In the fourth quarter of 2021, the median home sold for just over $408,000. 

Could you afford to pay that out of pocket? Probably not. That’s why most homebuyers wind up applying for mortgage loans.

Getting a mortgage can be a long process and lenders look at a lot of factors when deciding whether to approve your application. You also have to go through a similar process when refinancing.

One thing that lenders look for when making a lending decision is the loan-to-value (LTV) ratio of the loan.


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What Is a Loan-to-Value Ratio?

The loan-to-value ratio of a loan is how much money you’re borrowing compared to the value of the asset securing the loan. In the case of a mortgage, it compares the remaining balance of your loan to the value of your house. On an auto loan, it compares the balance of your loan to the value of your car.

Lenders use LTV as a way to measure the risk of a loan. The lower a loan’s LTV, the less risk the lender is taking. If you fail to make payments and the lender forecloses, a lower LTV ratio means the lender has a higher chance of fully recovering their losses by selling the foreclosed asset. A higher LTV means more risk the lender loses some money.

Lenders may have maximum LTVs that they’ll approve. For example, FHA loans require at least 96.5% LTV. Conventional loans require at least 97% LTV, but only for the best-qualified borrowers — most require 95% LTV or lower. Your loan’s LTV can have other important impacts on your borrowing experience, including your interest rate and monthly payment.


Calculating the Loan-to-Value Ratio

Because LTV plays a big role in the overall cost of your loan, it’s a good idea to calculate it before you apply. 

LTV Formula

To calculate the LTV ratio of a loan, you divide the balance of your loan by the value of your home.

The formula is:

(Loan balance / Home value) = LTV

LTV Calculation Example 

Imagine that you want to purchase a home that appraises for $300,000. You apply for a mortgage and get approved for a $270,000 loan.

The LTV of that loan is:

$270,000 / $300,000 = 90%

If you choose to make a larger down payment and only borrow $240,000, your mortgage’s LTV will be.

$240,000 / $300,000 = 80%

As you pay down your mortgage or as your home’s value changes, the loan’s LTV ratio moves away from this initial value. Typically, as you pay off your mortgage, the LTV ratio drops.


How LTV Affects Your Mortgage Rates

Lenders use LTV as a way to measure the risk of a loan. The higher the LTV of a loan, the higher its risk.

Lenders compensate for risk in a few ways. 

One is that they tend to charge higher interest rates for riskier loans. If you apply for a loan with a high LTV, expect to be quoted a higher interest rate than if you were willing to make a larger down payment. A higher rate raises your monthly payment and the overall cost of your loan.

Another is that lenders may charge additional fees to borrowers who apply for riskier loans. For example, you might have to pay more points to secure an affordable rate, or the lender might charge a higher origination fee. A larger down payment might mean lower upfront fees.

One of the most significant impacts of a mortgage’s LTV ratio is private mortgage insurance (PMI). While PMI does not affect the interest rate of your loan, it is an additional cost that you have to pay. Many lenders will make borrowers pay for PMI until their loan’s LTV reaches 80%. 

PMI can cost as much as 2% of the loan’s value each year. That can be a big cost to add to your loan, especially if you have a large mortgage.


LTV Ratio Rules for Different Mortgage Types

There are many different mortgage programs out there, each designed for a different type of homebuyer.

Different programs can have different rules and requirements when it comes to the LTV of a mortgage.

Conventional Mortgage

A conventional mortgage is one that meets requirements set by Fannie Mae and Freddie Mac. While these loans are not backed by a government entity, they must meet Fannie or Freddie’s minimum credit score and maximum loan amount thresholds, among other criteria. Otherwise, they can’t easily be repackaged and sold to investors — the fate of most mortgage loans after closing. 

Conventional mortgages have a maximum LTV of 97%. That means your down payment will need to equal at least 3% of the home’s value. If your LTV is higher than 80% to begin with, you’ll have to pay PMI until your LTV drops below 78%.

Refinancing Mortgage

Refinancing your mortgage lets you take your existing loan and replace it with a new one. This gives you a chance to adjust the interest rate or the length of your loan.

Most lenders aren’t willing to underwrite refinance loans above 80% LTV, but you might find lenders willing to make an exception.

FHA Loans

Federal Housing Administration (FHA) loans are popular with homebuyers because they allow low down payments and give people with poor credit the opportunity to qualify.

If you’re applying for an FHA loan, the maximum LTV is 96.5%, meaning you’ll need a down payment of at least 3.5%. If the LTV value of your mortgage starts above 90%, you’ll have to pay PMI for the life of the loan. If your LTV is less than that amount, you can stop paying PMI after 11 years.

VA Loans

VA loans are secured by the Department of Veterans Affairs. They’re only available to veterans, service members, members of the National Guard or Reserves, or an eligible surviving spouse.

These loans offer many benefits, including the option to get a loan with an LTV as high as 100%. That means that you can borrow the full amount needed to purchase your home. The only upfront costs you need to pay are the fees associated with getting the loan.

USDA Loans

USDA loans, guaranteed by the US Department of Agriculture, are designed to help people purchase homes in designated rural areas. Borrowers also have to meet certain maximum income requirements.

USDA loans can have LTV ratios of 100%, letting borrowers finance the entire cost of their home. The LTV of the loan can exceed 100% if the borrower chooses to finance certain upfront fees involved in the loan.

Fannie Mae & Freddie Mac

Fannie Mae and Freddie Mac are government-backed mortgage companies. Neither business offers loans directly to consumers. Instead, they buy and offer guarantees on loans offered by other lenders.

Together, the two companies control a major portion of the secondary market for mortgages, meaning that lenders look to offer loans that meet their requirements.

For a single-family home, Freddie Mac has a maximum LTV of 95% while Fannie Mae sets the maximum at 97% for fixed-rate loans and 95% for adjustable-rate mortgages (ARMs).


Limitations of LTV

There are multiple drawbacks to the use of LTV ratios in mortgage lending, both for borrowers and lenders.

One disadvantage is that LTV looks only at the mortgage and not the borrower’s other obligations. A mortgage with a low LTV might seem like it has very little risk to the lender. However, if the borrower has other debts, they may struggle to pay the loan despite its low LTV.

Another drawback of LTV is that it doesn’t consider the income of the borrower, which is an essential part of their ability to repay loans.

LTV ratios also depend on accurate assessments of a home’s value. Typically, homeowners or lenders order an appraisal as part of the mortgage process. However, if a home’s value increases over time, it can be difficult to know the home’s actual worth without ordering another appraisal.

That means that you might be paying PMI on a loan without realizing that your home’s value has increased enough to reduce the LTV to the point that PMI is no longer necessary. You can always order another appraisal, but you’ll have to bear the cost — typically around $500 out of pocket.


LTV vs. Combined LTV (CLTV)

When looking at a property, lenders often use combined loan-to-value (CLTV) ratios alongside LTV ratios to assess risk.

While an LTV ratio compares the balance of a single loan to the value of a property, CLTV looks at all of the loans secured by a property and compares them to the home’s value. It’s a more complete way of assessing the risk of lending to someone based on the value of the collateral they’ve offered.

For example, if you have a mortgage and later get a home equity loan, CLTV compares the combined balance of both the initial mortgage and the home equity loan against your home’s appraised value.


LTV Ratio FAQs

Loan-to-value ratios aren’t easy to understand. If you still have questions, we have answers. 

What Is a Good LTV?

What qualifies as a good LTV ratio depends on the situation, the loan you’re applying for, and your goals.

An LTV over 100% is pretty universally seen as bad because you wouldn’t be able to repay your loan even if you sold the collateral asset.

In general, a lower LTV ratio is better than a high LTV ratio, especially if you want to avoid paying for PMI on top of your mortgage loan payment.

The 80% threshold is a particularly important breakpoint, especially for conventional loans. If you have an LTV of 80% or lower, you can avoid PMI on conventional mortgages, saving hundreds of dollars per month early in the life of your loan. At 80% LTV, you’ll qualify for a good interest rate, though dropping to 70% or even 60% could drop your rate further.  

How Can I Lower My LTV?

There are two ways to lower the LTV of your mortgage: pay down your mortgage balance or increase the value of the property.

Your loan’s LTV will naturally decrease as you make your mortgage payments. You can speed up the process by making additional payments to reduce your balance more quickly.

If you make improvements to your home, it can increase your home’s value. Real estate prices may also rise in your area, bringing your home’s value up too. However, to formally update the value of your home, you’ll need to pay a few hundred dollars to get it appraised again.

What Does a 50% LTV Ratio Mean?

A 50% LTV ratio means that you have 50% equity in your home. In other words, the total loan balance secured by the home — whether it’s a first mortgage, home equity line of credit (HELOC), home equity loan, or some combination of the three — is half the appraised value of the property.

As an example, your loan-to-value ratio is 50% if your home is worth $200,000 and you still owe $100,000 on your mortgage.

What Does a 75% LTV Ratio Mean?

A 75% LTV means that your loan balance is three-quarters of your home’s value. For example, if your home is worth $200,000 and your remaining mortgage balance is $150,000, your LTV is 75%.


Final Word

LTV ratio is one way that lenders look at the risk of making a loan based on the value of the collateral securing it. In the real estate world, LTV is a very important measure because it impacts things like private mortgage insurance and mortgage interest rates.

If you’re looking to avoid paying PMI or trying to get out of paying PMI on your loan, you’ll want to take steps to lower your mortgage’s LTV ratio. You can do this by investing in home improvements that increase the value of your home, then ordering a professional appraisal, or by paying extra principal each month to reduce your mortgage balance faster.

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What Is a Trust Fund – How It Works, Types & How to Set One Up

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When most people hear “trust fund,” they think of wealthy people living in fancy estates using them to pass immense amounts of wealth to their heirs. But that isn’t always the case.

A trust fund is simply a legal entity that holds assets of value like property or stocks and bonds on someone else’s behalf (in trust). They’re useful for numerous reasons, including estate planning, protecting assets, avoiding complications during probate, and minimizing taxes.

Trust funds are helpful for estates of varying sizes. But before you set one up, it’s best to understand what it is and what it can and can’t do.


What Is a Trust Fund?

A trust fund is a legal entity that can hold valuable assets on behalf of an individual person, group, or organization. There are many different types of trust fund, each designed to achieve a different goal.


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Trusts give the person establishing them more control over their estate than a will does. They can also provide legal protections or tax benefits that reduce the taxes the person establishing the trust or its beneficiaries may owe.


How a Trust Fund Works

Establishing a trust fund requires three parties:

  1. The Grantor. The person who establishes the trust and places assets into that trust is the grantor. They determine the beneficiaries and any rules or stipulations they wish to put in place, such as only allowing the beneficiary to use the money to pay for college.
  2. The Beneficiary. The person, people, or organization that benefits from the trust is the beneficiary. They don’t own the assets but will benefit from them, often by receiving access at some point or getting monetary distributions from the trust.
  3. The Trustee. The person or organization responsible for managing the trust and its assets is the trustee. They must act as a fiduciary for the beneficiary and follow the rules or stipulations laid out in the trust documents.

To establish a trust, the grantor typically works with a lawyer to draw up a document outlining the terms of the trust, the beneficiaries, the trustee, and the details of how the trust will work. 

For example, a grandparent might establish a trust for their grandchildren, name their children as trustees, and stipulate that they must use the money for their grandchildren’s college education.

One perk for beneficiaries is that they do not pay taxes on their distributions. Instead, the IRS taxes the trust directly.

Trusts are a popular estate planning tool because they’re more binding than something like a will. In the example, the grandchildren must use the trust fund to pay for college costs. If the grandparent instead distributed that money in a will simply noting they want it to go toward college costs, the grandchildren don’t have the same legal obligations to use it for that. 


Types of Trust Funds

One of the benefits of trusts is their flexibility. You can establish one for almost any purpose. And there are many types of trust funds available to suit various needs. 

Living Trusts

Living trusts are trusts that you create while you’re alive. The benefit of a revocable trust is that they let the assets in the trust avoid probate, the process by which the executor of the estate determines how to distribute the property left behind. Probate can be a lengthy process, which living trusts let families avoid.

They come in two primary forms: revocable and irrevocable.

A revocable trust gives the grantor more power over the trust’s assets. The grantor can amend the trust documents at any time after creating a revocable trust, changing the terms of the trust, or naming different beneficiaries. 

Once the grantor dies, a revocable trust becomes an irrevocable trust and cannot be altered.

In contrast, irrevocable trusts are more permanent. Once the grantor establishes an irrevocable trust, they cannot make changes to it or name different beneficiaries without the consent of the current beneficiaries.

An irrevocable trust has additional tax benefits for the grantor. Because they can’t make changes or remove assets after forming the trust, any assets placed in the trust are no longer the grantor’s property.

That means the grantor can take advantage of the annual gift tax exclusion by making gifts to an irrevocable trust.

Testamentary Trust

You can also create a testamentary trust through your last will and testament. Essentially, it instructs the executor to create the trust after your death.

While that means testamentary trusts don’t provide all the benefits of avoiding probate you could get from a living trust, they still carry other benefits. For example, it allows the decedent to establish another kind of trust, like an educational trust, for an heir. It also lets them place more restrictions on how their heirs use the money left behind.

Educational Trust

An educational trust simply specifies the beneficiary must use the assets for educational purposes. It can be revocable or irrevocable.

Depending on the grantor’s wishes, the trust can specify where the beneficiary has to study, what subjects they need to study, how frequently it will make distributions, and what types of expenses it will cover.

For example, it could state that it will only cover the beneficiary’s tuition costs or make a lump-sum distribution each year the beneficiary is in school and leave it to the beneficiary to decide how best to spend the money for education.

Of course, these restrictions could have consequences. If the beneficiary doesn’t go to college or leaves money in the trust once they leave school, you need a plan for what to do with it.

Special Needs Trust

A special needs trust is a trust designed to help care for someone who is disabled or otherwise requires accommodations without disqualifying them from receiving government assistance.

Many government assistance programs require aid recipients to have a limited income or limited assets. If their income rises or they receive a large gift, it can stop them from receiving essential government aid.

A special needs trust can hold assets on behalf of someone receiving government care and ensure the trustee uses those assets to help the beneficiary.

The rules for these trusts can vary from state to state, but they must typically be irrevocable and give the trustee significant control over how to use or distribute the assets.

Charitable Remainder Trust

Charitable remainder trusts allow the grantor to benefit from charitable contribution tax deductions while still receiving income from their assets. In exchange, the funds remaining in the trust go to a charity once the grantor dies.

For example, Brianna could establish a charitable trust and name a local museum as the charity of her choice. If she places $100,000 in the trust, the trust might give her (or another named beneficiary) an annual payment of $5,000 each year until she dies.

When Brianna establishes the trust, she receives a tax benefit for making a charitable contribution to the museum. However, she does have to pay taxes on the distributions she receives.

Once Brianna dies, whatever money she left in the trust goes to the museum.

Charitable remainder trusts can be highly complex when it comes to taxes, so it’s essential to work with a tax professional when considering whether one is right for you.

Common Collective Trust Fund

A common collective trust fund is a trust fund managed by a bank or trust company. It combines assets for multiple investors, often pooling assets from things like profit-sharing, pension, and employee stock bonus plans. 

These funds are very similar to mutual funds and are commonly held in employer retirement plans.

Perpetual Trust Fund (Dynasty Trust)

A perpetual trust fund, also called a dynasty trust, is a trust that aims to pass wealth to future generations while avoiding taxes like the estate tax, gift tax, or generation-skipping transfer tax. A properly designed dynasty trust can last for many generations, creating a family dynasty of wealth.

These trusts usually include clauses to change their beneficiaries over time. For example, it might start benefiting the grantor’s children, then change to benefit the grantor’s grandchildren once they reach a certain age or all of the grantor’s children die.

Because the goal of dynasty trusts is to last for a long time or even forever, the grantors of these trusts typically name a financial institution or bank the trustee.

Assets in the trust aren’t the property of any of the beneficiaries, so they can avoid taxes like capital gains and estate taxes. However, they do have to pay income tax on distributions.

Spendthrift Trust

A spendthrift trust is one designed to protect the beneficiary from creditors and their own poor financial habits. These trusts typically give the trustee more control over the assets in the fund.

The effect is that the beneficiary can’t sell the trust’s assets or access significant amounts at once to squander. But neither can creditors if the beneficiary racks up considerable debt.

Social Security Trust Fund

The Social Security Trust Fund is the trust fund the Social Security Administration uses to hold all the assets used to pay benefits like Social Security and disability. It’s not a trust you can create, but almost every American pays into it and hopes to benefit from it someday, so it’s important to know how it works.

The trust fund owns interest-bearing government securities, such as bonds, and gets its funds from payroll tax deductions paid by both employees and employers.

When the benefits paid out by Social Security exceed the income received from payroll taxes, money from the trust fund pays those benefits. When payroll taxes exceed benefits paid, the additional revenue goes into the trust.

As of the Social Security Administration’s 2021 report, the Social Security Trust fund held $2.908 trillion in assets.


Advantages & Disadvantages of Trust Funds

Trusts have many tax benefits and can give the person establishing the trust more control over how the beneficiary ultimately uses their money. However, they’re not perfect for every situation.

Advantages of Trust Funds

Trusts can give their grantors control over their hard-earned money in life and in death, ensuring more of it goes to their beneficiaries than the government. A trust’s many benefits include: 

  1. Grantor Control. The person establishing the trust can set rules for how beneficiaries should use the funds in the trust, and the beneficiary must follow those wishes, even after the grantor dies.
  2. Tax Incentives. Various types of trusts can help the grantor and beneficiary avoid or reduce taxes like capital gains and estate taxes.
  3. Probate Avoidance. When someone dies, their estate goes through probate, a legal process by which the state or executor distributes assets, whether or not they have a last will and testament. Assets in a trust can skip this process, meaning loved ones can access the assets sooner. It also reduces the chance of the grantor’s wishes being ignored.
  4. Privacy. The probate process is public, which means the estate and wishes of someone who dies become public record. Trusts offer a more private option.

Disadvantages of Trust Funds

Though there are advantages to trusts, they aren’t right for everyone. Carefully consider these disadvantages before setting one up.

  1. Limited Benefit for Small Estates. One of the reasons to establish a trust is to avoid taxes. But smaller estates are unlikely to face taxes, anyway. For 2022, the estate tax exclusion is $12.6 million federally, though some states have lower limits. For example, Massachusetts and Oregon have the lowest exclusions as of this writing, taxing estates that exceed $1 million.
  2. Cost. Setting up a trust means working with expensive professionals like lawyers and tax professionals. The cost may exceed the benefit for some.
  3. Finding a Trustee. Establishing a trust means finding a trustee to manage it. You either have to ask a friend or relative to take on this task, which might be a large one depending on the trust’s assets, or pay a professional to handle the work.
  4. Loss of Control. While trusts give the grantor more control in some ways, setting up an irrevocable trust means losing control in others. Once you establish an irrevocable trust, you can’t make changes, which means losing some level of control over your assets.

How to Set Up a Trust Fund

Setting up a trust fund is a multistep process. If you’re looking to create a simple trust, you could finish in a few weeks. If you want to construct a more complicated one with many restrictions and beneficiaries and a large number of assets, you should expect a monthslong process. But the steps you take are the same either way.

1. Figure Out the Goals of Your Trust

The first step to set up a trust fund is to figure out your goals for establishing the trust.

Do you want to use the trust to have more control over how your beneficiaries use your assets after your death? Is avoiding taxes your primary goal? Do you want a way to donate money to charity but retain a stream of income for retirement? 

You can use a trust to accomplish each of these goals, but each requires a different type of trust.

2. Find a Trust Professional

Once you know your goals, you’re ready to sit down with a professional. Most major financial institutions offer fee-based trust services if you have sufficient assets with them. For example, Fidelity manages trusts of $1 million or more. Fees start at 0.45% of the invested assets, but the percentage decreases as you add funds. You can work with the professional to hammer out details.

3. Choose a Trustee

You also have to determine who the trustee and the beneficiary will be. For some types of trusts, such as a dynasty trust, you need a professional trustee, like a bank or financial institution. Other trusts, like educational trusts or spendthrift trusts, more naturally lend themselves to having a family member serve as trustee.

4. Make the Trust Official

Once you’ve worked out the details, your estate planning attorney, the trustee, and any financial advisors will help draft the trust documents. You just have to sign on the dotted line to make it official. 

5. Fund the Trust

Once you’ve signed the paperwork, you’re ready to start funding the trust. You can put pretty much any asset of value into the trust, including cash, real estate, and stocks.

6. Register the Trust

You must register your trust with the IRS so it can get a taxpayer identification number and file tax returns. If you’re working closely with a financial institution to manage the trust, your trustee can help. Otherwise, the tax professional, lawyer, or brokerage company holding the trust’s assets can help register it.


Trust Fund FAQs

Trusts are complicated, and there are many ways to set them up. But first, it’s essential to understand how they work and how you can use them to accomplish your financial goals.

What’s the Difference Between a Trust & a Trust Fund?

People often use the terms trust and trust fund interchangeably, but they’re slightly different things.

A trust fund is the legal entity that contains assets or property for the benefit of someone else. A trust is a legal document outlining the rules of who the trust fund benefits and how the beneficiary can use assets in a trust fund.

How Is a Trust Fund Handled in Probate?

One of the most popular reasons to set up a trust is to avoid the probate process, which can be lengthy and prevent your loved ones from accessing the money you leave behind when you die.

Any assets in a trust avoid probate court and can skip the normal legal process.

Who Should I Make My Trustee?

Naming your trustee can be difficult because you’re trusting that person with managing your assets and following the wishes you outlined in the trust. 

Some types of trusts naturally lend themselves to making a family member the trustee. For example, if you establish a trust to benefit your grandchild, it makes sense to name their parents (your own child) as the trustee.

Longer-term trusts may require a financial institution or a long-lasting entity to serve as the trustee. But that can mean paying management fees.

How Does a Trust Fund Affect Estate Taxes?

You can use a trust fund to reduce or avoid estate taxes to some degree. The IRS considers money placed in an irrevocable trust a gift in the year you place it in the trust.

Each year, taxpayers may make gifts up to a certain amount ($16,000 in 2022) without it counting against their lifetime gift limit. That means the grantor of a trust can add $16,000 to the fund each year and pay no taxes on that amount, reducing their potential estate tax liability.

What Is a Trust Fund Baby?

A trust fund baby is a pejorative term used to describe a young person whose parents or family established a trust fund for them. This trust provides them with a sufficient income to live comfortably without having to work or find significantly gainful employment.

The common image of a trust fund baby is that of a privileged young adult coasting their way through life with little to no responsibilities.

These situations certainly exist, but the term doesn’t accurately describe most people benefiting from trust funds. Trust funds are simply a legal tool people can use to protect their assets and ensure their beneficiaries follow their wishes. 

Many middle-class families use trust funds for reasons as simple as avoiding probate or keeping assets safe from creditors, not to let their children live a life of luxury without having to work.


Final Word

Trust funds are a powerful legal tool you can use for reasons ranging from estate planning and tax avoidance to caring for a loved one. Though they may have a negative reputation as a toll available only to the wealthy, many groups can benefit from using them.

If you’re thinking about setting up a trust fund, it’s also a good opportunity to think about taking inventory of your finances and ensuring everything is in order. You might also consider talking to an estate planning attorney to draft a will if you don’t already have one. Being prepared only benefits your family in the long run.

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TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he’s not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.

Source: moneycrashers.com

Gross Domestic Product (GDP) – What Is This Economic Indicator?

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Additional Resources

Gross domestic product (GDP) is one of the most commonly used measures of economic production in the world. Despite its popularity, many people don’t know exactly what GDP is, how to calculate it, or how it affects you.

Put simply, GDP is the total value of everything produced by an economy, typically a country, over a period, typically one year. This allows economists to compare the size of different economies. In general, the higher a country’s GDP, the stronger its economy.

GDP can be important for everyday people for a number of reasons.


What Is Gross Domestic Product (GDP)?

GDP is a measure of the total market value of everything an economy produces. That includes both physical goods as well as intellectual property and services produced by an economy. GDP is typically measured over the course of a quarter or year and based on political borders, such as for countries or states.


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You can think of GDP as being like a report card or scoreboard for the health of an economy. If a country’s GDP is rising, it means its economy is becoming more productive. If GDP is shrinking, its economy is becoming less productive. You can compare the size of two countries’ GDP to compare the output of their economies.

There are multiple ways to calculate GDP but they all aim to produce a similar result: a measure of the size of an economy.


Factors That Affect GDP

Because GDP measures the size of a country’s economy, it is influenced by numerous economic factors.

GDP is the sum of the market value of everything an economy produces. The more valuable goods and services an economy produces, the higher its GDP will be. Keep in mind, GDP is a measure of the current value of goods and services. If inflation causes prices to rise, a country’s GDP will also rise because goods are more expensive.

The primary way economists determine the value of goods produced by an economy is to add all government spending, personal consumption, private investing, and net exports. 

The more the government spends, the more private businesses and people invest, and the more consumers spend, the higher a country’s GDP will be. Exporting more than it imports will also increase a country’s GDP, whereas importing more than it exports will reduce its GDP.


Types of Gross Domestic Product

GDP is used in multiple different contexts. Economists have designed different types of GDP to help them measure different aspects of the economy.

Nominal GDP

Nominal GDP is one of the most common measures of gross domestic product. It is the value of all goods and services an economy produces using current prices, unadjusted for inflation. This means it is less useful for comparing the same economy across different years because inflation can cause GDP to rise due to price increases, even if an economy’s output does not change. 

However, it is useful for measuring output in current terms and is often the simplest to calculate because you don’t have to adjust for inflation.

Real GDP

Real GDP is an inflation-adjusted measure of gross domestic product. It measures the output of an economy using constant prices.

For example, imagine an economy that produces $1,000 worth of goods in a year. The next year, it produces the exact same goods, but those goods sell for $1,050 because inflation for the year is 5%. 

The real GDP in both years will be the same because real GDP adjusts for inflation using the value of the economy’s currency in the base year to determine the GDP for future years.

For real GDP to increase, the output of an economy must increase rather than prices increasing due to inflation.

This makes real GDP useful for comparing changes in the same economy over time or comparing growth in different countries’ GDPs over time.

GDP Per Capita

GDP per capita is a measure of economic production per population. GDP per capita can be expressed in multiple forms, including nominal, real, and purchasing power parity.

Determining GDP per capita requires calculating an economy’s GDP then dividing it by the economy’s population.

For example, if an economy has a GDP of $10 million and a population of 2,000 people, its GDP per capita is: $10 million ÷ 2,000 = $5,000 per capita.

GDP Growth Rate

GDP growth rate measures economic growth over time. Usually, economists measure this on a quarterly or annual basis. This is typically expressed as a percentage rate.

For example, if an economy’s GDP is $10 million in one year and $10.5 million the next, its GDP growth rate is 5%.

GDP growth rate is a popular measure for economists for a few reasons. One is that it can help economists see the speed of an economy’s expansion or contraction. An economy that is growing too quickly may lead to inflation and prompt central banks to raise interest rates. If growth slows, the economy might be heading toward recession, prompting policymakers to attempt to bolster the economy.

A negative GDP growth rate indicates an economy that is shrinking or in recession.

GDP Purchasing Power Parity (PPP)

Purchasing power parity is a measure of the different standards of living between economies. It analyzes the price of a “basket of goods” that contains different common products and services people purchase. Higher PPP indicates a more powerful currency that can purchase more goods or a higher standard of living.

GDP PPP adjusts an economy’s GDP for exchange rates and the purchasing power of its currency compared to other currencies, letting economists compare the output of an economy to its cost of living.


How GDP Is Calculated

There are multiple different ways to calculate GDP but they all aim to measure an economy’s output. Each formula tries to account for the same factors, just in different ways. 

There are three methods economists use to calculate economic activity and determine GDP.

Expenditure Approach

The expenditure approach looks to determine the GDP of an economy by finding the total of all spending in that economy. The idea is that all of an economy’s outputs are purchased by someone, so finding out how much money is spent by individuals, businesses, and the government will tell you the value of all the goods an economy produces during a period of time.

To find GDP using the expenditure approach, you can use this formula:

Consumption + Investment + Government Exports + Net Exports = GDP

Consumption refers to consumer spending on items like food, rent, gas, clothing, and any other goods and services that they might need. It does not include capital investments like equipment, machinery, or real estate.

Investment is the portion of the calculation that accounts for investment in equipment, land, machinery, and the like by both individuals and businesses. It doesn’t include investment in financial products like stocks, bonds, or mutual funds.

Government spending is the aggregate of all the money the government spends on goods and services, including government employee pay, military spending, and infrastructure. Things like Social Security benefits aren’t included because they are transfer payments — a reallocation of money from one group to another. Unemployment, subsidies, and welfare are similarly excluded.

Finally, net exports measures the value of all goods an economy exports minus the value of the goods it imports. A country that exports more than it imports will have a positive value for net exports, whereas one that imports more will have to subtract the difference when finding its GDP.

The drawback of the expenditure approach is that it ignores some forms of investment, such as putting money in savings accounts or buying stocks. It also values goods and services at the price the purchaser pays, even if they pay a heavily discounted price below the true value of that good or service or an inflated price above its true value.

Production (Output) Approach

The production, or output, approach to calculating GDP uses the value of all the final goods that an economy produces. Here’s how this method of calculating GDP looks:

Gross Value Added – Intermediate Consumption = Value of Output (GDP)

  • Gross Value Added. How much value different economic activities add to goods and services.
  • Intermediate Consumption. The cost of the supplies and labor used to produce finished goods and services.
  • Value of Output. This calculation gives you the GDP of an economy by subtracting intermediate consumption from the gross value of an economy.

The drawback of using this approach is that it is nearly impossible to determine the true amount of production in an economy or the true value of that production. Some services are difficult to measure monetarily and may not wind up in the calculation, even though they have a major impact on the economy.

For example, someone who babysits children for a family probably won’t show up in this calculation. However, their babysitting lets the parents go out and spend money at restaurants, movie theaters, or other businesses.

People who produce goods at home, especially those who don’t sell them, also won’t have their production included, even though goods like home-grown vegetables have real value that should be included in GDP.

Finally, this method fails to account for the underground economy, which is not reported to the government. Services performed under the table — those done outside of the formal economy through barter or cash payments that aren’t reported to tax authorities — are excluded even though they add value to the economy.

Income Approach

The income approach to determining GDP looks at all the money individuals and businesses in an economy earn. To find GDP using this method, you can use the following formula:

Wages, salaries, and bonuses + Corporate profits + Interest and investment income + Farm income + income from unincorporated businesses – Depreciation of assets – (indirect taxes – tax subsidies) = GDP

Indirect taxes are those collected by intermediaries and then paid to the government, such as sales taxes. Tax subsidies include the various tax credits and deductions people and businesses can claim on their income taxes.

The benefit of this approach is that it can be easier to measure income than production. It stands to reason that the amount of income in an economy will be similar to its economic output because that output is what produces the income.

The drawback of this approach is that it fails to account for savings and investment. Also, income does not always perfectly correlate with production. For example, productivity at a factory can rise without workers seeing an increase in their incomes.


How GDP Affects You

GDP is one of the economic indicators groups like the Bureau of Economic Analysis and the Organization for Economic Cooperation and Development (OECD) use to analyze economies. However, it may not be obvious how GDP can affect you.

The truth is, macroeconomics and measures like GDP can have a major impact on people’s day-to-day lives and well-being.

Interest Rates

One way GDP can impact people is in the interest rate market.

Countries usually have central banks or other organizations tasked with managing the economy — helping it to grow while avoiding high inflation and recessions. If GDP begins to rise quickly, inflation can become a risk, which can cause central banks to raise interest rates.

Those rate increases impact individuals by making borrowing and credit more expensive, such as with mortgages, auto loans, and credit cards.

If GDP falls, the central bank may take the opposite approach, lowering rates and making it cheaper to borrow, encouraging individuals to spend.

Investing

GDP is one of the most popular measures of an economy’s output. You can use it to see how an economy is growing over time.

Investors typically want to buy investments in companies that are experiencing increases in production, and therefore value. When GDP is growing, it’s easier for investors to find opportunities in that economy. When an economy’s GDP is falling, it can be a sign that companies in that economy are facing a difficult financial future.

Wages

Because GDP is a measure of economic output, it makes sense that wages would correlate with GDP. When production and output rise, workers should earn more. Similarly, wages might decrease when output also falls.

According to a study by the Economic Policy Institute, this was largely true for a long period of time. Between 1950 and 1980, productivity and wages increased similarly. Since 1980, productivity has increased while wages have not seen significant changes in real terms.

Unemployment

Modern economies rely on constant growth, with periods of shrinking GDP referred to as recessions. Typically, when GDP growth is strong, unemployment falls. Recessions can lead to significant amounts of unemployment as employers lay off workers or go out of business.

According to data from Pew Research, recessions directly lead to rising unemployment, with the 1990-1991 recession causing unemployment to rise from just under 6% to about 8%. Similarly, the Great Recession of 2007-2009 caused unemployment to rise from just over 4% to a high of nearly 10%.

As GDP began to grow again after these recessions, employment began to rise.


Criticisms of GDP

GDP is a useful economic measure used by organizations like the World Bank, International Monetary Fund (IMF), United Nations, and economists across the world. However, that doesn’t mean GDP is a perfect measure of the economy. There are many criticisms of GDP and situations where using GDP data to make decisions might not be a good idea.

These important economic factors are overlooked in traditional measurements of GDP:

  • Recessionary Hangovers. By definition, a recession ends when an economy’s GDP begins to rise after a period of decreasing. However, even when a recession technically ends, it can take years before the economy returns to its pre-recession level. For example, despite the Great Recession’s end in 2009, it took nearly a decade for unemployment to return to pre-recession levels.
  • Impacts of Credit. Not all spending in an economy comes from the income it generates. Individuals, corporations, and governments borrow money to spend on goods and services. The costs and impacts of this debt are not fully accounted for in GDP even though they can have massive impacts on an economy.
  • The Underground Economy. For many reasons, economic activity can occur outside of the usual channels, making it hard to track. The sale of illegal goods, for example, is rarely tracked and included in GDP even though those are technically goods produced by an economy. Similarly, someone working under the table or without an officially incorporated business might not report their income or sales, causing that production to be excluded from GDP.
  • Bartering. Related to the underground economy, some economic activity relies on bartering or the exchange of valuables other than cash. This type of activity usually doesn’t show up in GDP even though it can play a significant role in an economy, especially in the middle of a recession.
  • Unpaid Work. Many people perform valuable work, such as caring for children or older relatives, without any compensation. This work produces immense value but isn’t counted in GDP calculations.
  • Sustainability. GDP is purely a measure of economic production. It does not account for damage to the local environment or whether actions that are causing growth now will cause the economy to shrink in the long run. Nations that raze their forests, strip-mine their land, and build factories that pollute the air can see major GDP growth, but will likely find that growth unsustainable as they drain or degrade the natural resources that are available.

Gross Domestic Product FAQs

What’s the Difference Between GDP vs. GNP vs. GNI?

Gross domestic product (GDP), gross national product (GNP), and gross national income (GNI) are all macroeconomic measures that look at slightly different things.

GNP adjusts GDP for net income earned from outside the country’s borders. For example, if some of the income produced by a multinational organization within a country is sent to another nation, it is subtracted from GNP even though it is included in GDP.

GNI measures all of a nation’s income, including income earned by its residents and businesses including all income from foreign sources. It includes income its residents earn while abroad but excludes income earned by foreign residents within its borders.

Does GDP Include Inflation?

GDP measures the value of an economy’s output based on current values. That means changes in inflation impact GDP. If inflation makes goods cost more, those higher prices will cause GDP to rise.

Real GDP is a measure of GDP that adjusts for inflation, calculating the value of goods and services at a set monetary value. This measure is more useful for measuring GDP changes over time because it removes the rise in GDP caused by inflation.

What Does GDP Not Measure?

One of the criticisms of GDP is that it fails to measure many important aspects of economic activity.

One major factor GDP excludes is the underground economy, which includes everything from the sale of illegal goods and services to unreported cash transactions and barter transactions.

GDP is also limited in that it is solely an economic measure. GDP doesn’t account for important quality-of-life measurements like the availability of quality health care and education, equality, opportunity, or the environment.

This limitation has led to other measures that provide a more complete look at people’s well-being. For example, Bhutan’s government has designed the concept of Gross National Happiness, which tries to account for economic development alongside sustainability, environmentalism, preservation and promotion of culture, and good governance.

What Countries Have the Highest GDP?

There are multiple types of GDP, including nominal GDP, GDP per capita, and GDP PPP, which all measure slightly different things.

According to the World Bank, in terms of nominal GDP, which simply measures economic output, the top three countries are:

  1. United States ($20.953 trillion)
  2. China ($14.722 trillion)
  3. Japan ($5.057 trillion)

For GDP per capita, a measure of output compared to population, the top three are:

  1. Liechtenstein ($175,813 per capita)
  2. Monaco ($173,688 per capita)
  3. Luxembourg ($116,014 per capita)

For GDP PPP, which measures output while controlling for the purchasing power and cost of goods in different currencies, the top three are:

  1. China ($24.283 trillion)
  2. United States ($20.953 trillion)
  3. India ($8.975 trillion)

Final Word

GDP is a popular macroeconomic measure that tries to calculate the total value of an economy’s outputs. Despite its popularity, there are limits to GDP, and each different way of calculating it has pros and cons.

GDP can have some impacts on people’s everyday lives. Generally, financial times are good when GDP is growing and bad when it’s falling. Most people can feel satisfied understanding that simple fact and leave the more complicated measures and implications of GDP to central bankers and economists.

There are plenty of other economic indicators and measures that have a more direct impact on people’s lives. For example, the Consumer Price Index (CPI) is a measure of inflation and how it impacts the price of goods people buy regularly.

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TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he’s not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.

Source: moneycrashers.com

CryptoKitties – What Are These NFTs and Should You Buy Into This Game?

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Cryptocurrency and blockchain technology have been increasing in popularity for some time, starting with Bitcoin and venturing into a wide range of digital collectibles worth ridiculous sums of money. 

In September 2017, the Ethereum network launched the ERC-20 token standard, a standard that would change the game. Its non-fungible tokens (NFTs), unique tokens you can’t interchange like Bitcoin and Ethereum, could be introducing scarcity to the equation. 

Shortly after the launch, what is now known as Dapper Labs introduced the blockchain game CryptoKitties. It quickly became a craze. But what exactly is CryptoKitties, do the NFTs have value, and how do you get involved?


What Are CryptoKitties?

CryptoKitties is a blockchain game featuring digital cats as NFTs, or crypto collectibles. In the decentralized application, or dApp, an application built on a decentralized platform that’s not governed by a single party, players buy, sell, trade, and breed a decentralized collectible the likes of Beanie Babies. 


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Each cat in the game is unique, as is naturally expected of NFTs today. The collectible’s uniqueness is stored in a “smart contract,” a self-executing agreement between the buyer and seller included directly in the lines of code, offering both scarcity and security. These contracts live on the Flow blockchain.

The game uses Ethereum (ETH) cryptocurrency. That adds an exciting twist to ownership of the collectibles. As the value of Ethereum rises, the value of tokens that use the Ethereum economy tend to rise as well, outlining one of the ways to make money with CryptoKitties. 

The concept works much like the value of fiat currency (such as the U.S. dollar) when used to purchase traditional investments. When the dollar is more valuable, investments you bought with dollars also increase in value. 


How Does CryptoKitties Work?

It all started with the platform’s genetic algorithm, a computer algorithm designed to ensure that each kitten in the game is born with a unique genome stored on its smart contract. The kittens all have their own “cattributes,” a wide range of features, including things like fur style, color, ear shape, apparel, and even background. 

These features combine to point to the rarity of the cat itself, with each virtual cat falling into one of the following scarcity categories:

  • Normal. This is the most common form of cat in the game. 
  • Fancy. Fancy cats are a rarer type of cat, characterized by special artwork and a fancy cats badge.
  • Special Edition. Special edition cats are in second place as the rarest cats in the game. They also feature special artwork and are released in limited quantities. 
  • Exclusive. Finally, exclusive cats are the highest-scarcity cats in the game. In many cases, exclusive cats will be the only cats of their kind. 

As with any other commodity, digital or otherwise, the value of these cats is based on the law of supply and demand. So the scarcity level of the cat and demand for CryptoKitties play a significant role in the price of the token. 

Once you own a cat, you can breed them to create new, unique NFTs. You do so with a male cat (Sire) and a female cat (Dame), creating a combination of the two. 


How to Play CryptoKitties

To play the game, you’ll need to start by purchasing your first virtual cat, a multistep process that works very much like using a gift card with your Apple or Google Play account.

1. Sign Up for a Cryptocurrency Wallet

To purchase your first cat in the game, you need to have some Ethereum. You can’t put Ethereum in a real-world wallet or on a debit card. Instead, you need a cryptocurrency wallet, which is a device, program, or service that securely stores information about your cryptocurrency transactions. 

There are various options out there, but the big difference between them is whether they’re custodial or noncustodial. Custodial wallets have passwords a company stores and manages, while the wallet-holder manages noncustodial wallets. 

Custodial wallets make it easy to access your crypto assets if you lose your password because there’s a third-party custodian in charge of the platforms these wallets live on. But custodial wallets are also centralized. There’s no central authority on noncustodial wallets. Users determine their wallet management style and are the only parties with their passwords. 

Decide which direction you’d like to go, and choose from one of the many options. For more information, read our article on the best cryptocurrency wallets. 

2. Fund Your Wallet

Next, you need to buy Ethereum and add it to your wallet. Some CryptoKitties are very inexpensive at 0.001 ETH, or about $2.60, while others are very expensive, costing about 1,000 ETH, or more than $2.7 million. 

Also, every time you make a transaction, you pay gas fees that can range from a few bucks to hundreds, depending on the demand on the blockchain at the time of purchase. In crypto, “gas” is the unit of measurement for the amount of computational power it takes to process the transaction and smart contract. You’re essentially paying the miner for the use of their processor.

Considering that, it’s best to start with around $250 worth of Ethereum to ensure you can cover the cost of lower-cost cats and the gas fees associated with owning them. 

3. Sign Up for CryptoKitties

You can find the CryptoKitties marketplace at CryptoKitties.co. Simply sign up for the site and connect your wallet. It’s also a good idea to check the secondhand market for better deals before pulling the trigger, especially for price-sensitive collectors. Some popular secondhand markets include OpenSea, Crypto.com, and Rarible, but OpenSea is best for CryptoKitties.

4. Buy Your First Cat

The game is all about owning, breeding, and earning from the sale or trade of digital cats. To do so, you need to own a cat. Take some time to search through the dedicated marketplace and OpenSea to find a cat you’re interested in owning. 

Once you’ve found it, simply click “Buy” to get started. If the cat you’re interested in isn’t listed for sale, you can bid on it to entice the owner to take your offer.  

5. Trade, Sell, & Breed

Once you own your first cat, you can trade, sell, and breed. Make wise decisions when doing so, and you stand to earn a hefty chunk of profits. 


How to Make Money on CryptoKitties

CryptoKitties are digital assets that can have substantial value. There are a few options for unlocking this value to pad your pockets. 

Sell & Trade Cats

One option for making money with the game is to use the assets within the game as a collection. If you can get your hands on the right cats, holding them for a short period and selling them has the potential to generate profits. 

For example, look for rare cats, like Exclusive and Special Edition or Founder Cats (one of the original 100 cats the game started with), or cats with “mewtations,” which is the first cat in the collection with a new cattribute like a specific fur color or background color. 

It’s also possible to trade cats with other members. In some cases, you can trade your cat for one that has a higher potential to grow in value. For example, someone might need your cat for breeding purposes. Making these trades and holding onto your investment and selling it in the future are other options for making money. 

Breed Cats

The breeding feature of the game is also a compelling way to make money. If you own a Dame, you can search the marketplace for Sire cats and either buy one or pay a small fee to another user to use their Sire as a breeder. 

Once they breed, the new kitty is yours to keep, trade, or sell for a profit. It costs a flat 0.04 ETH fee plus gas to breed your crypto kitties, even if you own both the Sire and the Dame. 

Keep in mind that both the Sire and Dame require a cooldown period after the breeding period, during which no more breeding can take place. That period is longer for Dames than it is for Sires. There are also limitations on how much time you have to breed special-edition traits, like purrstige traits, into your kitties. 

What kind of cat you get after breeding (and therefore how much it’s worth) depends on the cat type and traits of the Dame and Sire.

  • Normal Cats. You can breed normal cats to get either other normal cats or, with the right combination of genetic traits, Fancy Cats.
  • Fancy Cats. You only get the limited-edition Fancy Cats when two cats with very specific traits breed, and there’s a limit to how many times you can breed them, which varies based on the Fancy Cat type. 
  • Special Edition Cats. While you can breed Special Edition Cats to get regular cats, there’s no hope of breeding a Special Edition kitty. You can only buy them.
  • Exclusive Cats. You can breed Exclusive Cats to get regular or Fancy Cats but not Special Edition or Exclusive offspring.

You may also get lucky and end up with highly valuable cats, such as:

  • Misprint Kitties. Misprint kitties are CryptoKitties that were minted with mistakes in their designs. In some cases, the cat doesn’t look anything like its traits suggest. Once they catch the misprint, future traits will be printed properly, but you could make serious money if you end up with a misprint. 
  • Mewtations. Mewtations are CryptoKitties that are the first of their kind with a specific new trait. Only the first cat printed with a trait is given a mewtation gem, making them rarer and highly prized among collectors. 

Sire Cats

If you’re not interested in owning a new kitten and you own a male cat, you’re in luck. You can make money by allowing others to pay a transaction fee to breed their Dames with your Sire, generating passive income in the process. 


CryptoKitty FAQs

It’s natural to have questions, and with CryptoKitties being one of the most popular NFT-centric games on the blockchain. These are the answers to some of the most common questions. 

What Is the Most Expensive CryptoKitty?

The most expensive cat, sold in 2021, was Founder Cat #40. The cat sold for the Ethereum equivalent of a little over $1.06 million. The cat is orange in color and sits on a green background with similar-colored eyes. 

What Happened to CryptoKitties?

In the beginning, this game was one of the hottest on the blockchain, and believe it or not, it still has somewhat of a user base. In 2018, CryptoKitties spun off into Dapper Labs, and since then, several blockchain games have popped up, increasing competition. 

At the same time, a separation in the game between rich players and players with average income began to cut into trading profits, resulting in less demand. According to a 2021 research paper published in Frontiers in Physics, the rapid decline from stardom was largely the result of this divide and a reduction in trading profits for the average player. 

Are CryptoKitties Free?

No, the price for a cat in the game ranges from a few bucks to more than $1 million. 


Final Word

At the end of the day, the big question is whether or not you should buy CryptoKitties. If you’re looking at it from an investor’s point of view, the answer is probably not. 

Sure, there’s a chance the game will rise to stardom in the metaverse yet again. But there’s a larger chance interest in the game will continue fading as increasing competition with more intriguing functionality hits the blockchain.

While the heyday of the CryptoKitty may be in the past, it was fun to watch the rise and eventual fall of the game, and it’s impossible to discount the integral role it played in the development of the metaverse of today. 

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

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Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

Source: moneycrashers.com

Gross Domestic Product (GDP) – Definition of This Economic Measure

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Additional Resources

Gross domestic product (GDP) is one of the most commonly used measures of economic production in the world. Despite its popularity, many people don’t know exactly what GDP is, how to calculate it, or how it affects you.

Put simply, GDP is the total value of everything produced by an economy, typically a country, over a period, typically one year. This allows economists to compare the size of different economies. In general, the higher a country’s GDP, the stronger its economy.

GDP can be important for everyday people for a number of reasons.


What Is Gross Domestic Product (GDP)?

GDP is a measure of the total market value of everything an economy produces. That includes both physical goods as well as intellectual property and services produced by an economy. GDP is typically measured over the course of a quarter or year and based on political borders, such as for countries or states.


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You can think of GDP as being like a report card or scoreboard for the health of an economy. If a country’s GDP is rising, it means its economy is becoming more productive. If GDP is shrinking, its economy is becoming less productive. You can compare the size of two countries’ GDP to compare the output of their economies.

There are multiple ways to calculate GDP but they all aim to produce a similar result: a measure of the size of an economy.


Factors That Affect GDP

Because GDP measures the size of a country’s economy, it is influenced by numerous economic factors.

GDP is the sum of the market value of everything an economy produces. The more valuable goods and services an economy produces, the higher its GDP will be. Keep in mind, GDP is a measure of the current value of goods and services. If inflation causes prices to rise, a country’s GDP will also rise because goods are more expensive.

The primary way economists determine the value of goods produced by an economy is to add all government spending, personal consumption, private investing, and net exports. 

The more the government spends, the more private businesses and people invest, and the more consumers spend, the higher a country’s GDP will be. Exporting more than it imports will also increase a country’s GDP, whereas importing more than it exports will reduce its GDP.


Types of Gross Domestic Product

GDP is used in multiple different contexts. Economists have designed different types of GDP to help them measure different aspects of the economy.

Nominal GDP

Nominal GDP is one of the most common measures of gross domestic product. It is the value of all goods and services an economy produces using current prices, unadjusted for inflation. This means it is less useful for comparing the same economy across different years because inflation can cause GDP to rise due to price increases, even if an economy’s output does not change. 

However, it is useful for measuring output in current terms and is often the simplest to calculate because you don’t have to adjust for inflation.

Real GDP

Real GDP is an inflation-adjusted measure of gross domestic product. It measures the output of an economy using constant prices.

For example, imagine an economy that produces $1,000 worth of goods in a year. The next year, it produces the exact same goods, but those goods sell for $1,050 because inflation for the year is 5%. 

The real GDP in both years will be the same because real GDP adjusts for inflation using the value of the economy’s currency in the base year to determine the GDP for future years.

For real GDP to increase, the output of an economy must increase rather than prices increasing due to inflation.

This makes real GDP useful for comparing changes in the same economy over time or comparing growth in different countries’ GDPs over time.

GDP Per Capita

GDP per capita is a measure of economic production per population. GDP per capita can be expressed in multiple forms, including nominal, real, and purchasing power parity.

Determining GDP per capita requires calculating an economy’s GDP then dividing it by the economy’s population.

For example, if an economy has a GDP of $10 million and a population of 2,000 people, its GDP per capita is: $10 million ÷ 2,000 = $5,000 per capita.

GDP Growth Rate

GDP growth rate measures economic growth over time. Usually, economists measure this on a quarterly or annual basis. This is typically expressed as a percentage rate.

For example, if an economy’s GDP is $10 million in one year and $10.5 million the next, its GDP growth rate is 5%.

GDP growth rate is a popular measure for economists for a few reasons. One is that it can help economists see the speed of an economy’s expansion or contraction. An economy that is growing too quickly may lead to inflation and prompt central banks to raise interest rates. If growth slows, the economy might be heading toward recession, prompting policymakers to attempt to bolster the economy.

A negative GDP growth rate indicates an economy that is shrinking or in recession.

GDP Purchasing Power Parity (PPP)

Purchasing power parity is a measure of the different standards of living between economies. It analyzes the price of a “basket of goods” that contains different common products and services people purchase. Higher PPP indicates a more powerful currency that can purchase more goods or a higher standard of living.

GDP PPP adjusts an economy’s GDP for exchange rates and the purchasing power of its currency compared to other currencies, letting economists compare the output of an economy to its cost of living.


How GDP Is Calculated

There are multiple different ways to calculate GDP but they all aim to measure an economy’s output. Each formula tries to account for the same factors, just in different ways. 

There are three methods economists use to calculate economic activity and determine GDP.

Expenditure Approach

The expenditure approach looks to determine the GDP of an economy by finding the total of all spending in that economy. The idea is that all of an economy’s outputs are purchased by someone, so finding out how much money is spent by individuals, businesses, and the government will tell you the value of all the goods an economy produces during a period of time.

To find GDP using the expenditure approach, you can use this formula:

Consumption + Investment + Government Exports + Net Exports = GDP

Consumption refers to consumer spending on items like food, rent, gas, clothing, and any other goods and services that they might need. It does not include capital investments like equipment, machinery, or real estate.

Investment is the portion of the calculation that accounts for investment in equipment, land, machinery, and the like by both individuals and businesses. It doesn’t include investment in financial products like stocks, bonds, or mutual funds.

Government spending is the aggregate of all the money the government spends on goods and services, including government employee pay, military spending, and infrastructure. Things like Social Security benefits aren’t included because they are transfer payments — a reallocation of money from one group to another. Unemployment, subsidies, and welfare are similarly excluded.

Finally, net exports measures the value of all goods an economy exports minus the value of the goods it imports. A country that exports more than it imports will have a positive value for net exports, whereas one that imports more will have to subtract the difference when finding its GDP.

The drawback of the expenditure approach is that it ignores some forms of investment, such as putting money in savings accounts or buying stocks. It also values goods and services at the price the purchaser pays, even if they pay a heavily discounted price below the true value of that good or service or an inflated price above its true value.

Production (Output) Approach

The production, or output, approach to calculating GDP uses the value of all the final goods that an economy produces. Here’s how this method of calculating GDP looks:

Gross Value Added – Intermediate Consumption = Value of Output (GDP)

  • Gross Value Added. How much value different economic activities add to goods and services.
  • Intermediate Consumption. The cost of the supplies and labor used to produce finished goods and services.
  • Value of Output. This calculation gives you the GDP of an economy by subtracting intermediate consumption from the gross value of an economy.

The drawback of using this approach is that it is nearly impossible to determine the true amount of production in an economy or the true value of that production. Some services are difficult to measure monetarily and may not wind up in the calculation, even though they have a major impact on the economy.

For example, someone who babysits children for a family probably won’t show up in this calculation. However, their babysitting lets the parents go out and spend money at restaurants, movie theaters, or other businesses.

People who produce goods at home, especially those who don’t sell them, also won’t have their production included, even though goods like home-grown vegetables have real value that should be included in GDP.

Finally, this method fails to account for the underground economy, which is not reported to the government. Services performed under the table — those done outside of the formal economy through barter or cash payments that aren’t reported to tax authorities — are excluded even though they add value to the economy.

Income Approach

The income approach to determining GDP looks at all the money individuals and businesses in an economy earn. To find GDP using this method, you can use the following formula:

Wages, salaries, and bonuses + Corporate profits + Interest and investment income + Farm income + income from unincorporated businesses – Depreciation of assets – (indirect taxes – tax subsidies) = GDP

Indirect taxes are those collected by intermediaries and then paid to the government, such as sales taxes. Tax subsidies include the various tax credits and deductions people and businesses can claim on their income taxes.

The benefit of this approach is that it can be easier to measure income than production. It stands to reason that the amount of income in an economy will be similar to its economic output because that output is what produces the income.

The drawback of this approach is that it fails to account for savings and investment. Also, income does not always perfectly correlate with production. For example, productivity at a factory can rise without workers seeing an increase in their incomes.


How GDP Affects You

GDP is one of the economic indicators groups like the Bureau of Economic Analysis and the Organization for Economic Cooperation and Development (OECD) use to analyze economies. However, it may not be obvious how GDP can affect you.

The truth is, macroeconomics and measures like GDP can have a major impact on people’s day-to-day lives and well-being.

Interest Rates

One way GDP can impact people is in the interest rate market.

Countries usually have central banks or other organizations tasked with managing the economy — helping it to grow while avoiding high inflation and recessions. If GDP begins to rise quickly, inflation can become a risk, which can cause central banks to raise interest rates.

Those rate increases impact individuals by making borrowing and credit more expensive, such as with mortgages, auto loans, and credit cards.

If GDP falls, the central bank may take the opposite approach, lowering rates and making it cheaper to borrow, encouraging individuals to spend.

Investing

GDP is one of the most popular measures of an economy’s output. You can use it to see how an economy is growing over time.

Investors typically want to buy investments in companies that are experiencing increases in production, and therefore value. When GDP is growing, it’s easier for investors to find opportunities in that economy. When an economy’s GDP is falling, it can be a sign that companies in that economy are facing a difficult financial future.

Wages

Because GDP is a measure of economic output, it makes sense that wages would correlate with GDP. When production and output rise, workers should earn more. Similarly, wages might decrease when output also falls.

According to a study by the Economic Policy Institute, this was largely true for a long period of time. Between 1950 and 1980, productivity and wages increased similarly. Since 1980, productivity has increased while wages have not seen significant changes in real terms.

Unemployment

Modern economies rely on constant growth, with periods of shrinking GDP referred to as recessions. Typically, when GDP growth is strong, unemployment falls. Recessions can lead to significant amounts of unemployment as employers lay off workers or go out of business.

According to data from Pew Research, recessions directly lead to rising unemployment, with the 1990-1991 recession causing unemployment to rise from just under 6% to about 8%. Similarly, the Great Recession of 2007-2009 caused unemployment to rise from just over 4% to a high of nearly 10%.

As GDP began to grow again after these recessions, employment began to rise.


Criticisms of GDP

GDP is a useful economic measure used by organizations like the World Bank, International Monetary Fund (IMF), United Nations, and economists across the world. However, that doesn’t mean GDP is a perfect measure of the economy. There are many criticisms of GDP and situations where using GDP data to make decisions might not be a good idea.

These important economic factors are overlooked in traditional measurements of GDP:

  • Recessionary Hangovers. By definition, a recession ends when an economy’s GDP begins to rise after a period of decreasing. However, even when a recession technically ends, it can take years before the economy returns to its pre-recession level. For example, despite the Great Recession’s end in 2009, it took nearly a decade for unemployment to return to pre-recession levels.
  • Impacts of Credit. Not all spending in an economy comes from the income it generates. Individuals, corporations, and governments borrow money to spend on goods and services. The costs and impacts of this debt are not fully accounted for in GDP even though they can have massive impacts on an economy.
  • The Underground Economy. For many reasons, economic activity can occur outside of the usual channels, making it hard to track. The sale of illegal goods, for example, is rarely tracked and included in GDP even though those are technically goods produced by an economy. Similarly, someone working under the table or without an officially incorporated business might not report their income or sales, causing that production to be excluded from GDP.
  • Bartering. Related to the underground economy, some economic activity relies on bartering or the exchange of valuables other than cash. This type of activity usually doesn’t show up in GDP even though it can play a significant role in an economy, especially in the middle of a recession.
  • Unpaid Work. Many people perform valuable work, such as caring for children or older relatives, without any compensation. This work produces immense value but isn’t counted in GDP calculations.
  • Sustainability. GDP is purely a measure of economic production. It does not account for damage to the local environment or whether actions that are causing growth now will cause the economy to shrink in the long run. Nations that raze their forests, strip-mine their land, and build factories that pollute the air can see major GDP growth, but will likely find that growth unsustainable as they drain or degrade the natural resources that are available.

Gross Domestic Product FAQs

What’s the Difference Between GDP vs. GNP vs. GNI?

Gross domestic product (GDP), gross national product (GNP), and gross national income (GNI) are all macroeconomic measures that look at slightly different things.

GNP adjusts GDP for net income earned from outside the country’s borders. For example, if some of the income produced by a multinational organization within a country is sent to another nation, it is subtracted from GNP even though it is included in GDP.

GNI measures all of a nation’s income, including income earned by its residents and businesses including all income from foreign sources. It includes income its residents earn while abroad but excludes income earned by foreign residents within its borders.

Does GDP Include Inflation?

GDP measures the value of an economy’s output based on current values. That means changes in inflation impact GDP. If inflation makes goods cost more, those higher prices will cause GDP to rise.

Real GDP is a measure of GDP that adjusts for inflation, calculating the value of goods and services at a set monetary value. This measure is more useful for measuring GDP changes over time because it removes the rise in GDP caused by inflation.

What Does GDP Not Measure?

One of the criticisms of GDP is that it fails to measure many important aspects of economic activity.

One major factor GDP excludes is the underground economy, which includes everything from the sale of illegal goods and services to unreported cash transactions and barter transactions.

GDP is also limited in that it is solely an economic measure. GDP doesn’t account for important quality-of-life measurements like the availability of quality health care and education, equality, opportunity, or the environment.

This limitation has led to other measures that provide a more complete look at people’s well-being. For example, Bhutan’s government has designed the concept of Gross National Happiness, which tries to account for economic development alongside sustainability, environmentalism, preservation and promotion of culture, and good governance.

What Countries Have the Highest GDP?

There are multiple types of GDP, including nominal GDP, GDP per capita, and GDP PPP, which all measure slightly different things.

According to the World Bank, in terms of nominal GDP, which simply measures economic output, the top three countries are:

  1. United States ($20.953 trillion)
  2. China ($14.722 trillion)
  3. Japan ($5.057 trillion)

For GDP per capita, a measure of output compared to population, the top three are:

  1. Liechtenstein ($175,813 per capita)
  2. Monaco ($173,688 per capita)
  3. Luxembourg ($116,014 per capita)

For GDP PPP, which measures output while controlling for the purchasing power and cost of goods in different currencies, the top three are:

  1. China ($24.283 trillion)
  2. United States ($20.953 trillion)
  3. India ($8.975 trillion)

Final Word

GDP is a popular macroeconomic measure that tries to calculate the total value of an economy’s outputs. Despite its popularity, there are limits to GDP, and each different way of calculating it has pros and cons.

GDP can have some impacts on people’s everyday lives. Generally, financial times are good when GDP is growing and bad when it’s falling. Most people can feel satisfied understanding that simple fact and leave the more complicated measures and implications of GDP to central bankers and economists.

There are plenty of other economic indicators and measures that have a more direct impact on people’s lives. For example, the Consumer Price Index (CPI) is a measure of inflation and how it impacts the price of goods people buy regularly.

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

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TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he’s not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.

Source: moneycrashers.com

The Cheapest Neighborhoods in Kansas City for Renters in 2022

There’s no shortage of things to do in Kansas City.

This popular tourist destination is also home to many renters who enjoy a great job market and a low unemployment rate. Kansas City is known for its thought-provoking art, museums, culinary delights, entertainment venues and myriads of fountains. Some even state that Kansas City boasts more fountains than Rome itself.

Whether it’s touring the National WWI Museum and Memorial or planning a family-friendly trip to the Kansas City Zoo, interactive experiences await in this “City of Fountains.”

What is the average rent in Kansas City?

Many renters enjoy the flexibility and excitement that Kansas City has to offer. As of Jan. 2022, the average rent for a two-bedroom apartment in Kansas City is $1,341 per month. However, you can still acquire a comfortable two-bedroom apartment by selecting one of the most affordable neighborhoods in Kansas City to settle down.

The 10 most affordable neighborhoods in Kansas City

Budgeting is essential when renting. However, even individuals watching their money can still experience what people love about Kansas City without breaking the bank.

Here, we’ll check out the 10 cheapest neighborhoods in Kansas City to help give you a better feel for each one.

10. Barry Harbour

Barry Harbor

Barry Harbor

Source: Rent.com/The Heights at Linden Square
  • Average 2-BR rent: $1,238
  • Rent change since 2021: +0.98%

Barry Harbour is a highly residential neighborhood with multiple apartment complexes and townhomes. In fact, several of these are right by Wood Bridge Park. Tenants enjoy walking or driving to this large green space to decompress and relax. Nearby, Highlands Performance Volleyball Club provides training and team play for school-aged girls.

Schools in Barry Harbour include Hopewell Elementary School and LEAD Innovation Studio. Right outside the eastern boundary of Barry Harbour is PowerPlay Metro North Entertainment Center, an entertainment venue with arcade games, laser tag, a carousel and go-karts. In addition to being a family-friendly area, Barry Harbour is one of the most affordable neighborhoods in Kansas City.

9. Hill Haven

Hill Haven

Hill Haven

Source: Rent.com/Bennington Park Townhomes
  • Average 2-BR rent: $1,162
  • Rent change since 2021: +6.19%

Hill Haven has a broad stripe of green space running down its center. It consists of Hidden Valley Park, with wide, open tracts of land, walking trails and a sports field. Hidden Valley Park encompasses 193.2 acres and some of the land operated as a radio-controlled airplane airfield in the past. In fact, locals sometimes still refer to it as the “Airplane Park.”

Commercial businesses appear throughout the neighborhood of Hill Haven, and many of its apartment complexes and townhomes are close to Hidden Valley Park. The Missouri River runs along Hill Haven’s southern edge. This beautiful and naturally breath-taking area is also one of the cheapest places to live in Kansas City.

8. South Side

South Side

South Side

Source: Rent.com/Meridian at View High
  • Average 2-BR rent: $1,123
  • Rent change since 2021: -2.71%

The South Side is a larger residential area with much to offer. Its attractions and employment opportunities make it a popular neighborhood in Kansas City. For example, the Kansas City Zoo is here, with more than 200 sprawling acres and approximately 1,700 animals to view and interact with. The Regnier Family Wonderscope Children’s Museum of Kansas City is also on the South Side, offering interactive exhibits to the public. Young children learn about a variety of subjects, including math, art and science.

Many medical centers are in or near the South Side, including University Health Lakewood Medical Center, Saint Luke’s East Hospital, KU Medical Center, Research Medical Center and Rock Hill Medical Plaza. The South Side is also one of the cheapest neighborhoods in Kansas City.

7. Columbus Park

Columbus Park

Columbus Park

Source: Rent.com/One Light Luxury Apartments
  • Average 2-BR rent: $1,117
  • Rent change since 2021: +0.40%

Columbus Park has intermittent green spaces and delicious eateries. The Garrison Community Center is over a century old and a well-known community hangout. Its activities, events and clubs help keep youth, adults and seniors engaged. Columbus Square Park allows individuals to unwind after a long, hard day at work, and Harrison Street DIY Skate Park attracts experienced and novice skaters.

Local cuisine includes Vietnamese specialties at the Vietnam Cafe, Italian food at Garozzo’s Downtown and classic brunches at Happy Gillis. Moretina’s Caddy Shack is a popular place to grab a beer or have a glass of wine. The interactive neighborhood of Columbus Park is also one of the cheapest places to live in Kansas City.

6. Fairlane

Fairlane

Fairlane

Source: Rent.com/Haven Apartments
  • Average 2-BR rent: $1,107
  • Rent change since 2021: +8.38%

Fairlane has multiple schools to choose from, making it perfect for renters with young or growing families. The Hillcrest Community Center provides events for all age groups and is a great place to socialize. South of the community center sits Jerry Darter Park, where children enjoy a nice playground area.

The residential neighborhood of Fairlane is complete with businesses, pharmacies, churches and restaurants. Its affordable housing and family-friendly community are a bonus considering it’s one of the cheapest places to live in Kansas City.

5. Quality Hill

Quality Hill, one of the cheapest neighborhoods in Kansas City.

Quality Hill, one of the cheapest neighborhoods in Kansas City.

Source: Rent.com/Summit on Quality Hill
  • Average 2-BR rent: $1,057
  • Rent change since 2021: -5.84%

Quality Hill is abuzz with excitement. Positioned close to Downtown, this neighborhood is unique in its own right. Quaff Bar & Grill is a sports bar serving up cold drinks, classic food like wings and burgers, live music, dancing, games of pool and more. Peanut Downtown is also a well-rated bar and grill with a rich history. It’s Kansas City’s oldest bar, and it operated as a speakeasy in 1933 before the government repealed Prohibition laws.

Not far away, you can enjoy a well-seasoned steak at The Majestic Restaurant while swaying to live jazz in the background. Quality Hill is a happening place, especially for one of the cheapest neighborhoods in Kansas City.

4. East Side

East Side

East Side

Source: Rent.com/Hampton Court
  • Average 2-BR rent: $896
  • Rent change since 2021: +13.04%

The East Side neighborhood covers an immense area and comprises multiple districts. It’s home to Arrowhead Stadium, where professional football games and large concerts last well into the night. Right across the way is Kauffman Stadium, where baseball fans holler for their favorite teams.

There are plenty of family-fun activities on the East Side, too. Play arcade games, mini-golf, speed around in go-karts or test your skills out at the batting cage when you visit Cool Crest Family Fun Center. With plenty of businesses, schools, parks, restaurants, entertainment venues and golf courses, the East Side is one of the busiest places in Missouri. It’s also one of the cheapest neighborhoods in Kansas City.

3. Park Farms

Park Farms, one of the cheapest neighborhoods in Kansas City.

Park Farms, one of the cheapest neighborhoods in Kansas City.

Source: Rent.com/Park Meadows
  • Average 2-BR rent: $856
  • Rent change since 2021: +4.87%

Park Farms has clusters of housing and schools. This highly residential neighborhood is not far from Go Ape Zipline and Adventure Park. Here, individuals take to the skies via a zip line, hone their ax-throwing skills and navigate their way through various outdoor obstacles.

Park Farms also has its own green space, Cave Spring Park. Cave Spring Park is a National Historic Landmark with trails, picnic tables, a pavilion and a play area. It’s also dog-friendly, though the park does request that dogs stay on their leashes at all times. Park Farms has easy access to other parts of the city and is currently one of the cheapest neighborhoods in Kansas City.

2. Ashland Ridge

Ashland Ridge

Ashland Ridge

Source: Rent.com/Harvard Court
  • Average 2-BR rent: $832
  • Rent change since 2021: +5.51%

Ashland Ridge is known for its unique restaurants and bars. Witness authentic Italian cuisine at V’s Italiano Ristorante, mouthwatering tomato-free chili atop burgers, tacos and spaghetti at Dixon’s Famous Chili Parlor and flavorful Mexican food at La Fuente Mexican Restaurant. Sit back and sip cocktails at the Time Out Lounge or head on over to Harvey’s Neon Bar for a quick bite to eat and a cold beer.

One of Ashland Ridge’s primary attractions is its proximity to large venues like Arrowhead Stadium and Kauffman Stadium, which are only a car ride away. Sports fans will enjoy being able to hop in the car and head to a nearby game. Currently, Ashland Ridge is one of the most affordable neighborhoods in Kansas City.

1. Loma Vista

Courtyard Apartments, the cheapest neighborhood in Kansas City, MO

Courtyard Apartments, the cheapest neighborhood in Kansas City, MO

Source: Rent.com/Courtyard Apartments
  • Average 2-BR rent: $787
  • Rent change since 2021: -17.48%

Loma Vista is a largely residential neighborhood ripe with schools, a public library, pharmacy, restaurants, churches and businesses. Loma Vista has a small park, Schumacher Park. If you’re a nature-lover and want more green space, Loma Vista is exceptionally close to the Blue River Glades Natural Area. Follow along the Eddy-Ballentine Trail, where individuals can walk or hike.

Heart of America Golf Course and Hillcrest Golf Course are also nearby for those who enjoy a good game of golf on the weekends. In addition to being a rather large neighborhood with affordable apartments and housing, Loma Vista is also currently the cheapest neighborhood in Kansas City.

The most expensive neighborhood in Kansas City

Crown Center is a prestigious neighborhood in Kansas City. It has the finest shops, boutiques, attractions and restaurants in Missouri. Everything you can want or imagine is right within this neighborhood, from live theater to an extensive aquarium to swanky shopping centers. Finding things to do in Crown Center is never an issue, so it’s no wonder that it’s the most expensive neighborhood in Kansas City. Currently, the average two-bedroom rent in Crown Center is $2,425, and there has been a 3.67 percent rent change since 2021.

Find an affordable neighborhood for your next apartment

We are here to assist you in your search to find apartments for rent in Kansas City. The cheapest neighborhoods in Kansas City mentioned here will put you well on your way to locating the perfect place to settle down.

Rent prices are based on a rolling weighted average from Rent.com’s multifamily rental property inventory as of Jan. 2022. Our team uses a weighted average formula that more accurately represents price availability for each unit type and reduces the influence of seasonality on rent prices in specific markets. The rent information included in this article is used for illustrative purposes only. The data contained herein do not constitute financial advice or a pricing guarantee for any apartment.

Source: rent.com

The Cheapest Neighborhoods in Washington, D.C. for Renters in 2022

The nation’s capital has so many things to do and so many affordable places to live.

Washington, D.C. is a thriving, vibrant city. It’s far more than just the seat of the country’s government and history. It’s a modern metropolis full of things to do, from bars and nightclubs to outdoor activities. There are enough museums and art galleries to keep you busy for two lifetimes. Everywhere you turn, there’s something going on, whether it’s concerts in the park or lectures at the library.

D.C. is one of the most diverse cities in the country. You’re likely to run into people from all over the nation and even the world. It’s even become one of the most popular cities in the U.S. for hipsters, thanks to a thriving bar and brewery scene. You’ll find your social circle here, no matter what it is!

Most of the neighborhoods are walkable and public transportation is readily available. Many residents don’t even own a car. If you’re moving to D.C. and pick the right neighborhood, you can get around using just the subway and the bus.

What is the average rent in Washington, D.C.?

The average rent in Washington, D.C. in January of 2022 was $2,604 for a two-bedroom apartment. This is a 15.87 percent increase over the prior year.

The 10 cheapest neighborhoods in Washington, D.C.

No matter what your tastes are, you can find a place you love in D.C. There are historic neighborhoods side by side with modern ones. The District is eight separate wards, each of which consists of multiple neighborhoods. While D.C. has a well-deserved reputation for being expensive, you can find some deals if you look.

These are the 10 cheapest neighborhoods in Washington, D.C. in descending order. Most of them are on the southeastern side of the city and are an easy commute to the Capitol District and Downtown.

10. Southeast Washington

Southeast Washington

Southeast Washington

Source: Rent.com/Washington View
  • Average 2-BR rent: $1,856
  • Rent change since 2021: -33.83%

Coming in at No. 10 on the list of cheapest places to live in Washington, D.C., Southeast Washington is south of Capitol Hill. It’s home to the Library of Congress and the Navy Yard. Fort Dupont Park holds concerts every summer and you can watch baseball games at National Park.

This neighborhood is popular with families. The schools are above average. Southeast Washington is well-connected to public transportation. Many people even walk to work. There’s also an ample number of restaurants and small stores located here.

9. Greenway

Greenway

Greenway

Source: Rent.com/Milestone Apartments
  • Average 2-BR rent: $1,609
  • Rent change since 2021: 0%

You’ll find Greenway on the southeast side of the city. It’s bounded by Pennsylvania Ave SE on the southern end and East Capitol Street on the north. It’s a residential neighborhood with plenty of families and young professionals.

Greenway has many parks and Fort Dupont Park runs along part of the eastern side of the neighborhood. There aren’t many shopping, entertainment or restaurant options within the neighborhood itself, but there are plenty within easy reach. If you want a primarily residential area that’s still in the heart of D.C., Greenway is a good choice.

8. Fort Dupont

Fort Dupont

Fort Dupont

Source: Rent.com/Fort Dupont Overlook
  • Average 2-BR rent: $1,609
  • Rent change since 2021: 0%

This neighborhood is on the southeastern side of D.C. and is home to both Fort Dupont Park and Fort Chaplin Park. The Benning Stoddard Recreation Center is also here. You’ll never run out of things to do if you like outdoor activities and live in Fort Dupont!

Many families call Fort Dupont home. It’s easy to get to public transportation and to commute anywhere in the city by car. The residential focus means you won’t find much in the way of nightlife, but there are a few restaurants and grocery stores to choose from.

7. Barry Farm

Barry Farm, one of the cheapest neighborhoods in Washington, D.C.

Barry Farm, one of the cheapest neighborhoods in Washington, D.C.

Source: Rent.com/Pomeroy Gardens
  • Average 2-BR rent: $1,541
  • Rent change since 2021: +0.63%

A historic neighborhood on the southeast side of D.C., Barry Farm has a dense urban feel and is primarily residential. Barry Farm has the distinction of being one of the few neighborhoods created by the Freedman’s Bureau after the Civil War that’s still in existence. It’s bounded by Suitland Parkway, the Southeast Freeway and St. Elizabeth’s Hospital.

Barry Farm is the neighborhood park and gives the neighborhood its name. It’s mostly residential but amenities are nearby, as is access to public transportation. Easy access to the highways also makes commuting a breeze. It’s popular with families, as more than a third of the residents are families with small children.

6. Marshall Heights

Marshall Heights

Marshall Heights

Source: Rent.com/5430 C St. SE
  • Average 2-BR rent: $1,475
  • Rent change since 2021: 0%

Marshall Heights is No. 6 on the list of most affordable neighborhoods in Washington, D.C. It’s on the southeastern edge of the city not too far from the Anacostia River. There are two subway stops and multiple bus stops within the neighborhood, and it also has easy access to the interstates for commuting.

Numerous parks and two recreation centers are here. There’s limited shopping and entertainment options, but it’s easy to access other areas of the city. Many families call Marshall Heights home. Shopping and restaurant choices are also limited.

5. Anacostia

Anacostia, one of the cheapest neighborhoods in Washington, D.C.

Anacostia, one of the cheapest neighborhoods in Washington, D.C.

Source: Rent.com/Marbury Plaza
  • Average 2-BR rent: $1,428
  • Rent change since 2021: +5.10%

This neighborhood borders Anacostia Park and is on the National Register of Historic Places. It’s full of parks and museums, such as the Frederick Douglas National Historic Site. Bike paths crisscross the neighborhood and its also served by both the D.C. Metro and the bus line. Anacostia is only a 10-minute subway ride from Downtown D.C.

The Anacostia Playhouse assures you’ll never run out of cultural events, and there are concerts in the parks every summer. While primarily residential, the neighborhood is home to supermarkets, restaurants and a few shopping centers, as well.

4. Congress Heights

Congress Heights

Congress Heights

Source: Rent.com/Meadowbrook Run
  • Average 2-BR rent: $1,286
  • Rent change since 2021: -3.72%

An up-and-coming historic neighborhood in southeastern D.C., Congress Heights has Anacostia Park and Joint-Base Anacostia Boiling on the west and the headquarters of the U.S. Coast Guard and the Entertainment and Sports Arena on the north and the Oxon Run National Parkway on the east. Not bad for one of the cheapest neighborhoods in Washington, D.C.!

Entertainment is what draws many people to live in Congress Heights. The Entertainment and Sports Arena has basketball games and live music year-round. If arts and culture are more your thing, check out the Congress Heights Arts and Culture Center, a place dedicated to showcasing local artists. The Town Hall Education Arts Recreation Campus (THEARC) and the Southeast Campus of the Washington Ballet are also located here.

You can also check out any of the many cafés and bars, spend time at numerous parks and work out at the SE Tennis & Learning Center. Like most D.C. neighborhoods, Congress Heights is well-connected to public transportation.

3. Bellevue

Bellevue, one of the cheapest neighborhoods in Washington, D.C.

Bellevue, one of the cheapest neighborhoods in Washington, D.C.

Source: Rent.com/The Vista
  • Average 2-BR rent: $1,200
  • Rent change since 2021: 0%

A historic neighborhood on the southeastern side of the District, Bellevue is almost surrounded by parks. It’s a great place to live if you want easy access to green space in the middle of the city! The Bald Eagle Recreation Center also has a 6,600-square-foot gym with a boxing ring, workout space and showers. Fort Greble Park has a splash pad and community garden.

Bellevue is a popular neighborhood for families with young children. Its location makes it easy to get to big employers, such as the Navy Yard and Joint Base Anacostia-Boiling. It’s only a 10-minute drive from the U.S. Capitol. There aren’t many shopping options within the neighborhood, but there are several large shopping centers nearby.

2. Historic Anacostia

Historic Anacostia

Historic Anacostia

Source: Rent.com/2317 16th St. SE
  • Average 2-BR rent: $1,122
  • Rent change since 2021: 0%

This is a smaller subsection of the larger Anacostia neighborhood and consists almost entirely of historic buildings erected between 1854 and 1930. It has one of the most unique architectural spaces of any neighborhood in the entire city. If you’re a fan of period architecture, you’ll love this neighborhood!

One of the best features of the neighborhood, aside from being one of the cheapest places to live in Washington, D.C., is Anacostia Park, an absolutely beautiful park adjoining the neighborhood on the western side and buffering it from the Anacostia River. You’ll find a variety of restaurants and shopping options within the neighborhood.

Despite its age, Historic Anacostia is part of the modern world with a connection to the D.C. Metro at Howard Road SE. Young professionals love this neighborhood with its easy commute to downtown and other employment centers.

1. Washington Highlands

Washington Highlands, the cheapest neighborhood in Washington, D.C.

Washington Highlands, the cheapest neighborhood in Washington, D.C.

Source: Rent.com/Overlook
  • Average 2-BR rent: $1,099
  • Rent change since 2021: +0.65%

Washington Highlands tops the list of cheapest neighborhoods in Washington, D.C. in 2022. This neighborhood is popular with families who have young children and the elderly. It sits between Oxon Run Park and Oxon Run National Parkway on the southeastern side of D.C. United Medical Center, a major local hospital, is on the northeastern border of the neighborhood.

Interstate 294 and Highway 210 are both easily accessible from this neighborhood. Public transportation also connects to the rest of the city. The Ferebee-Hope recreation center has indoor and outdoor basketball courts, an aquatic center and a gym. The other parks also have athletic facilities, and the Southeast Tennis and Learning Center are nearby.

You can catch cultural events at the ARC cultural arts center and the Oxon Run Amphitheater. There isn’t much nightlife in the area, but it’s an easy commute to more party-friendly neighborhoods of the city. You’ll also need to travel to find many shopping and eating options.

The most expensive neighborhood in Washington, D.C.

While the above list contains the most affordable neighborhoods in Washington, D.C., the most expensive neighborhood is Dupont Circle. You’ll need to bring home some serious money to afford it. A two-bedroom apartment in this neighborhood averaged $5,045 per month in January of 2022. That’s an increase of 7.48 percent over January of 2021.

Dupont Circle is an older neighborhood in the center of D.C. It’s a walkable neighborhood full of historic buildings and some of the most recognizable landmarks in the District, such as the Woodrow Wilson House. It’s popular with childless professionals. This is one of the most popular neighborhoods in the city, which is part of the reason it’s so expensive.

Find an affordable neighborhood for your next apartment

Washington, D.C. is an incredible place to live. Whether you’re into government, history or just modern urban living, you’ll love living in the nation’s capital. There are many apartments for rent in Washington, D.C. Use this list of the cheapest neighborhoods in Washington, D.C. to help you find your perfect match.

Rent prices are based on a rolling weighted average from Rent.com’s multifamily rental property inventory as of January 2022. Our team uses a weighted average formula that more accurately represents price availability for each unit type and reduces the influence of seasonality on rent prices in specific markets. The rent information included in this article is used for illustrative purposes only. The data contained herein do not constitute financial advice or a pricing guarantee for any apartment.

Source: rent.com

3 Phone Games That Could Earn You $83 Every Time You Play

Like the other games mentioned here, you can play either casually or competitively for real cash.
Winners can even get invited to championship matches to set their bubble-shooter sights on winning much more money.
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So far, players have won more than .5 million playing Solitaire Cash, Bubble Cash and Bingo Cash.

1. Solitaire Cash

You don’t just earn points by marking squares when they’re called — the faster you mark a square, the more points you’ll earn.
So many of the usual ways you can win money require pure luck. We’re looking at you, scratch-offs and lottery tickets. But luck is unreliable — we prefer to use skill.
Bubble Cash is a free iPhone app based on a classic bubble-shooter format that lets you play for real money. You could get paid up to per win. You’ll battle it out against other players within your skill level to see who can clear the board fastest. Everyone gets the same layout, so winning is totally a matter of skill. The top three players who clear their board fastest can win real money — anywhere from to .
How can you make bingo more fun? You do it by adding strategy.
There’s a free iPhone app called Solitaire Cash that lets you play for real money. You could get paid up to per win.
No pressure. You can play casually for free and competitively when you’ve developed a winning strategy. Either way, you don’t have to worry about spammy ads disrupting the experience.
No pressure. You can play casually for free and competitively when you’ve developed a winning strategy. Either way, you don’t have to worry about spammy ads disrupting the experience.

2. Bubble Cash

App Store Rating:
App Store Rating:
See if you can win your first prize pool in these strategy games on both iPhone and Android phones. With some practice and a bit of luck, you can join the growing ranks of players who’ve won tens of thousands — even hundreds of thousands of dollars — from the larger prize pools.

It’s easy to get started. Download Solitaire Cash, Bubble Cash and Bingo Cash free on the iOS App Store.
Bingo Cash has an exceptional rating of 4.7 stars out of 5, the average from over 18,000 reviews.
Wrong. There really isn’t a catch. Sure, you can pay to play in some higher-stakes tournaments, but there’s no pressure. And, in fact, there aren’t even any annoying ads.
This isn’t a mindless shooter. It’s more of a fast-paced puzzle game, in which you’ll need to put a little thought into each shot you take.
And we’ve found three great iPhone games that let you put your skills to the test for a shot at winning every time you play — plus chances to bag much more.
App Store Rating:
Don’t worry. Bingo Cash won’t throw you to the wolves. The game has a matchmaking system so you’ll go up against players of similar rank. The top three players in a game can win real money — anywhere from to . <!–

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You can cash out your winnings via PayPal or Apple Pay. And there are no ads to annoy you during the game, even if you opt to play for free.