What is GDP?
GDP stands for Gross Domestic Product, which refers to the calculation of all the gross services and goods produced by a specific country over a year. Typically, GDP is used to gauge the rate of economic growth of a particular nation. Moreover, it is also referred to as the measure of the total economic health of a country. GDP has been commonly used as a useful gauge although it is not considered as perfect yardstick. For this reason several people insinuate alternative methods of gauging both social and economic health.
GDP is computed by getting the aggregate amount of the entire public and private expenditures, goods and services produced as well as total income from exports. In terms of inflation and imports, there is a need to adjust the GDP to come up to a computation which is considered accurate in reflecting the aggregate sum of the goods and services of a particular country. GDP is typically presented in volume. However, to create a number reflecting the average for each citizen, GDP is converted into GDP per capita. An increase in GDP per capita signifies an increase the living standards of the people in a particular nation.
Although considered as imperfect yardstick, GDP is still a reliable gauge in comparing preceding GDP figures to determine economic health. This is due to the reason that GDP is calculated in an unambiguous and uniform method. Moreover, GDP can also be utilized by economists to compare the economy of different nations. The main objective of calculating GDP is to give the citizens an idea about how much their country’s economy has grown from the preceding years. To give the people a clearer picture of how their country’s economy is doing, economists issue quarterly GDP.
Economy experts have been arguing that GDP’s biggest drawback is that it does not include the accounting of black and gray markets. This may appear as not a key concern. However, there are numerous nations that have active black markets. Such huge black market activities may signify a huge portion of GDP. Another problem with GDP is that it does not show or properly represent the distribution of wealth. It was proven that GDP per capita covers up disparities in economy. As for example, the United States has enormous number of GDP per capita. However, the discrepancy between the poorest and wealthiest people is enormously huge.
Another study about GDP problem is that it does not account for the quality of services and goods produced. This may also mean that GDP is not accounting the objective for which such services and goods were produced. One good example of this is a country rebuilding its infrastructures due to a damage done by an earthquake. The money spent for rebuilding the country’s infrastructures contributes to the GDP of the nation. However, the recovery itself from the earthquake damage is not linked to the growth of the economy. Moreover, environmentalists are also arguing that GDP falls short in considering factors pertaining to the environment. Environmentalists cite the example of products which contributes to pollution. This suggests that environmental damages must play part of the GDP since funds used for the rehabilitation contributes to the overall GDP.