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The Connection of GDP and the State of the Economy - Research Paper Example

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This paper outlines the essential role of GDP indicator in evaluating the current state of a given economy, measuring its level of growth and the level of productivity, which in turn defines the welfare of the community. The state of a country’s economy can be identified by a number of different types of economic statistics or indicators such as GDP, GNP, NNP, RGNP and NGNP
GDP exhibit the market value of all goods and services produced in the country economy during given period, including personal consumption, government purchases, private inventories, paid-in construction costs and the foreign trade balance excluding net income from abroad
Since the measurement of GDP is frequently done in all countries, various economic trends can be easily identified and appropriate measures in terms of fiscal and monetary policies put in place. Additionally, the measure of GDP can be used to measure the living standards of different countries especially by international organizations like the United Nations to determine the level of aid required.
An increase in GDP per capita income enhances the likelihood of more goods and services being available to consumers and the enhanced willingness and ability of the consumers to purchase them.
The measure of GDP is an indicator of the general economic activity exemplified by the level of production of good and services. This implies that a high GDP means low unemployment rates while the converse is true. A drop in production of goods and services implies a

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Additionally, the measure of GDP can be used to measure the living standards of different countries especially by international organizations like the United Nations to determine the level of aid required (Instruct team, 2003). Despite GDP being a tool for measurement of the living standards, economists have raised various reservations related to it. These include the value of unpaid work or work in progress which is not taken into consideration. Additionally, the growth in national income does not necessarily mean a rise in the living standards of the citizens as the income may be concentrated on a small percentage of the population. Over time prices of goods and services change affecting the index of retail prices accompanied with general decline in the quality of life as a result of non-monetary aspects like increase pollution and poor working conditions (Ryan, 2011). GDP and Economic Growth The measure of GDP is an indicator of the general economic activity exemplified by the level of production of good and services. This implies that a high GDP means low unemployment rates while the converse is true. A drop in production of goods and services implies a rise in unemployment rates arising from retrenchment of employees to minimize on expenses and shutting down of many companies to avoid losses (Till, 2012). Comparing the unemployment rate of Canada and the changes in the GDP over five years justifies this correlation. Okun’s law, which states that the levels of GDP are driven by the principles of demand and supply and must, therefore, be accompanied by a corresponding increase in the level of productivity and employment in order for equilibrium to be achieved, gives a precise explanation of this relationship. Thus, it is evident that the
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Summary

This paper talks about the importance of GDP indicator in measuring the rate of growth of an economy, and in defining the standards of living amongst the citizens. GDP provides an overall picture of a country’s economic state and is viewed as the indicator of a country’s economic state at any time…
The Connection of GDP and the State of the Economy
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