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Managerial Economics Assignment - Essay Example

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Managerial Economics Assignment GDP or gross domestic product is an economic indicator that can combine within a single figure the total market value of all the final goods and services that are produced within the country’s economic territory in a given period…
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Managerial Economics Assignment

Download file to see previous pages... Given the implicit link that is found between market growth and the elements of well-being (e.g. levels of employment and consumption), GDP is often regarded as a proxy indicator for human development and well-being. However, this relationship between economic growth and social welfare is not straight. Soon after the inception of GDP, the interpretation and its use as a proxy for social welfare received much criticism which included some of the most established thinkers in economics such as Joseph Stiglitz, Amartya Sen and Muhammad Yunus (Wesselink, et al., 2007, p.3). GDP is limited in the sense that it does not put in a number of factors that can determine the well being of the people and nature such as the value for non-market goods and services like an ecosystem services, for unpaid labor, and leisure or in distributional issues. Several measures like aggregated single number indicators, indicator sets, and satellite accounts have been formed that can act as the complements to GDP and in related economic indicators (Wesselink, et al., 2007, p.5). Standard of living and GDP GDP per capita is not a proper measure for the standard of living found in an economy (Economics, 1958, p.310). However, it is frequently used to be such an indicator based on the rationale that all people in a country would be befitting from their country's higher economic production. Similarly, GDP per capita is not an accurate measure for personal income (Eckes, 2011, p.7). GDP can increase while the real incomes of the majority decline. The major advantage of using GDP per capita to be an indicator for standard of living is that GDP per capita is measured frequently, widely, and consistently. It is measured frequently in several countries as they provide information on GDP on quarterly basis, allowing the trends to be understood by the analysts quickly. It is measured widely in the sense that some indicators of GDP are always available in almost every country of the world, which allows inter-country comparisons. It is measured consistently as the technical definition for GDP is relatively same or consistent among the countries (Muljadi, n.d, p.14). Despite of these features, it is not considered to be a good measure for the standard of living. The argument favoring the use of GDP as a proxy for the standard-of-living is not that fact that GDP of a nation is a good indicator for the absolute level of standard of living, but the fact that the living standard tends to move with the per-capita GDP, so that the changes in the living standards are easily detected by the changes in GDP (Muljadi, n.d, p.14). GDP versus real GDP GDP = consumption (personal + government spending) + business (non-financial) investment + net exports (exports - imports). It is essential to know the real definition of GDP which is that it is used to measure the total production in a country. It is a metric for economic activity. As such, the exact value of GDP has very little relevance. Instead, the economy of a country is interested mostly in the changes in GDP, or in the comparisons between countries or in different time periods. As the change in GDP over a certain time is important, one has to carefully consider the impacts of inflation. An inflation rate of say 5% would automatically lead to a 5% increase in GDP (assuming the inflation metric is a reasonably representative of the prices for the entire economy) ...Download file to see next pagesRead More
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