Economic measurements - Essay Example

Gross Domestic Product Gross domestic product helps measure the economic activity of a country in terms of the value of thegoods and services it produces in a certain period. It can be expressed as nominal gross domestic product or real gross domestic product. Nominal gross domestic product uses incumbent prices to express the value of goods and services produced in a country at a given period. Real gross domestic product expresses a country’s value of goods and services using constant consumer and producer price indices in removing the effects of inflation.

Real gross domestic product shows that the economy of a country is growing and that average incomes are increasing consumption. Negative real gross domestic product indicates lower incomes, lower consumption and poor standard of living (Brezina 24). Largely, gross domestic product is a better economic indicator than its alternatives despite its shortcomings. Production is one of the ways of estimating a country’s gross domestic product. Using production in estimating the gross domestic product requires the subtraction of inputs used in the production process from the value of the final output.

The value of the final good incorporates the value of inputs and the expertise used in manufacturing and caution is needed not to overestimate the gross domestic product. Overestimation of the gross domestic product happens when outputs are double-counted. Double counting is avoided by calculating and aggregating the value-added at different stages of production. The aggregate is called gross value added, it needs adjustment for taxes, and subsidies in order to derive a gross domestic product estimate (Stiglitz et al 112).

Gross domestic product is an applauded economic indicator because it factors in inflation. This allows investors and firms to compare incumbent trends with previous periods. It does well in capturing the heath of an economy and it has a significant influence on markets (NAS 25). Gross domestic product is able to mark the beginning and the end of an economic recession. Gross domestic product is limited by its periodical release because its data may not be timely in capturing some changes in the economy.

Its sensitivity to revision is a limitation as it can have significant changes in historical figures (Fioramonti 85). Alternatives to gross domestic product in measuring the economic growth and health of a country include green accounting that factor in the environmental impacts of production. There are alternatives that take into account leisure. Index of sustainable economic welfare takes into account pollution and income distribution. Genuine progress indicator factors in the impact of economic growth on welfare.

Gross national happiness, national wellbeing accounts, and happy planet index are other alternatives to gross domestic product (Tainer 63). Gross domestic product has persisted as a preferred economic indicator of economic growth and economic health. This is because there have been reforms and improvements to it that enables it to address emergent economic issues. For example, gross domestic product has been reformed to take into account spending on research and development as investment in order to feature in the final gross domestic product estimate.

Gross domestic product is a tool that informs political ramifications such as those that regulate the flow of investment capital in and out of a country. Policy makers assesses for changes needed on interest rates in order to curb effects of inflation. Policy makers utilize gross domestic product estimates in making decisions on financing costs (Brezina 24). Works CitedBrezina, Corona. Understanding the Gross Domestic Product and the Gross National Product. New York, NY: Rosen Pub, 2012. Print.

Fioramonti, Lorenzo. Gross Domestic Problem: The Politics Behind the Worlds Most Powerful Number. London: Zed Books, 2013. Print. National Accounts Statistics: Main Aggregates and Detailed Tables, 2005. New York: United Nations, 2007. Print. Stiglitz, Joseph E, Amartya Sen, and Jean-Paul Fitoussi. Mismeasuring Our Lives: Why Gdp Doesnt Add Up. New York, N.Y: New Press, 2010. Print. Tainer, Evelina M. Using Economic Indicators to Improve Investment Analysis. Hoboken: John Wiley & Sons, 2006. Print.