Important questions on GDP

July, 2015

  • The economic prosperity of a nation is measured by the percentage of growth in GDP terms. GDP is a universally acknowledged tool that acts as an indicator of the economic health of a country, while also help gage a country’s standard of living.
  • It does so by summing up the value of all the finished goods and services produced within a country’s borders during a given time period.
  • A nation is made up of people. This means, the economic prosperity at the national level must be ‘felt’ by its population.
  • A growing GDP % would indicate that businesses, like the economy are flourishing, as with the personal income. If however the growth rate slows down the GDP, businesses tend to hang on to their investments in human and physical capital till the economic performance improves.
  • Conversely, the GDP could head the opposite, where the GDP happens to be in the negative, we can then conclude that we, as an economy, have now entered an economic slump. Synonymous to all previous depressions, the economy suffers during this period.
  • Since the entire economy’s status is depicted in the GDP % from the stock market to the price of agro products, it is often revised and calculated more frequently.
  • The purpose of GDP fails when the per capita income is inflated by a limited class of people due to the unequal distribution of resources.
  • Here are questions from a layman to an economist – when for example it is said a country’s GDP is growing by 7%:
    • Do I get 7 per cent more (real) buying power?
    • Do 7 per cent more people get jobs?
    • Does the country produce / consumer 7 per cent more goods and services?
    • Or am I borrowing 7 per cent more – against my future income?