Gross Domestic Product (GDP) refers to the total market or monetary value of all the finished products and services
Gross Domestic Product (GDP) refers to the total market or monetary value of all the finished products and services produced by a particular country within a specific time (Gwartney, 2018). GDP broadly measures a country\’s overall domestic production, functioning as the country\’s economic health scorecard. The gross domestic product can be calculated using three approaches: the income approach, expenditure, and output approach (Fraumeni, 2017). When calculating gross domestic products, only values of final goods and services are counted while at the same time ignoring certain aspects of non-production transactions which had taken place within that particular time. Similarly, transfer payments are ignored.
However, despite its wide application in investment decisions, its limitation is that it excludes key components that are equally important. It ignores the quality of goods, non-market activities, black market activities, and not contributing to economic welfare. For the last three quarters in the US, the GDP has increased at an annual rate of 31.3%, as Gross domestic products of the country have witnessed a decline growing at a negative value. For instance, GDP for the last quarter seen the economy\’s Gross domestic product shrink by 5% amid a global pandemic (Inekwe,2018). Gross domestic product is an accurate measure of the size of an economy at any particular time, especially when the focus has shifted the growth rate as it correlates with the living standards. However, real GDP is different because it considers inflation into account.
Measurement Pros: It is a broad measure of development. It is easy to compare GDP between one country and the other; GDP is cheap and easy to collect. Cons: GDP will not factor in the overseas account, the government can adjust figures to gain power, and it does not account for inequality. Real GDP is different in that it is an inflation-adjusted indicator that typically reflects the overall value of products and services produced by a particular economy per annum. GDP is computed by dividing the nominal GDP over a GDP deflator.
Reference
Fraumeni, B. M. (2017). Gross domestic product: Are other measures needed? IZA World of Labor.Inekwe, J. N., Jin, Y., & Valenzuela, M. R. (2018). The effects of financial distress: Evidence from US GDP growth. Economic Modelling, 72, 8-21.
Gwartney, J. D., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2018). Economics: private & public choice. Cengage Learning.
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