EXPLAINING GDP 5
GrossDomestic Product (GDP) refers to a measure of the economic growth inthe country at particular time. In general, it gauges the standardsof living of a country. GDP is demonstrated in either as nominal orreal terms. The Nominal GDP recognizes the value of all the good andservices produced over a particular period, considering their pricesand time (Boyes& Melvin 2013).On the other hand, Real GDP deals with the value of goods and serviceproduced using the producer and consumer price indices to address theissues of inflation.
TheGDP can be measured using three different approaches. The firstmethod is production estimate. It is based on the final output lessthe data used. For instance, where the output product is a car, thedata include labor, tires and advertising among others (Boyes& Melvin 2013).The other approach is costs estimate. It is based on the totalexpenditure on goods less intermediate goods and services. The thirdmethod is income estimate. This measures individual earnings from theproduction outputs. The GDP figures are derived from operatingprofits and average earnings (Brezina,2012).
GrossDomestic Product statistics is used to compare the economy`s outputof different countries however they are without criticisms for anumber of reasons. The first limitation is that there is a differencein the distribution of income. Despite, having the same GDP, twocountries may have varying distribution of income (Brezina,2012).The second limitation is difference in the number of hours worked.When comparing the GDP between two countries over a particularperiod, the number of hours worked to achieve an individual levelcould differ. For instance, there are countries that work for longerhours than others. International price differences are another factorthat limits GDP. Purchasing power is the amount needed to buy aparticular commodity in the market. It is determined by the livingstandards as well as inflation rates (Brezina,2012).There is a need to achieve the purchasing power parity which is acomplicated process. Further, the difficulty of quantifying theactual values of public goods such as education, defense, healthcareand infrastructure is unknown.
Therehave been attempts to establish a clear understanding of humanprogress and economists relate economic growth with improvedwell-being and happiness. However, there has not been a clearrelationship between economic and social well-being. Income refers toflow of financial resources that helps individuals in theirhouseholds over time. Research shows that an increase in income leadsto an improvement in the social well-being of individuals (Boyes& Melvin 2013).Contrary, under conditions of low incomes, people tend to live inpoverty.
Economistsfurther argue that since there is no meaningful approach to comparewelfare and satisfaction of different people, they rely on the socialwell-being of these people. Economists use economic variables such asincome to ascertain their well-being. In addition, they argued thatthe production and investment determine the nation`s economicwell-being that in turn contributes to the well-being of individuals(Brezina,2012).It is argued that resources that are available to individuals shouldnot be relied upon when establishing the relationship betweeneconomic and social well-being because individual abilities to changethese resources differ.
Economicdevelopment organizations have established specific programs andactivities that are implemented in unique ways. Their primary focusis to provide a healthier and a sustainable economy for the community(Boyes & Melvin 2013). These groups help boost the businessenvironments as well as improving the living standards ofindividuals. Economic growth and productivity leads to theestablishment of advanced educational institutions that strive toachieve excellence and produce people of high integrity who willfurther the economic growth. It is through economic growth thatemployment is created and this promotes personal development.
Boyes,W. J., & Melvin, M. (2013). Economics.Australia: Cengage Learning South-Western.
Brezina,C. (2012). Understandingthe gross domestic product and the gross national product. New York, NY: Rosen Pub.