Unemployment Rate or GDP OR CPI - Research Paper Example

Gross Domestic Product (GDP) Gross Domestic Product (GDP) refers to total market value of all the final products in a nation over a year or a certain period of time. This measure is always deemed to be a major indicator of a country’s living standards and its calculation comprise of all the public and private consumptions, government expenditures, investments and net exports which occur within a defined territory; GDP = C + G + I + NX, where:C is the total consumption or spendingG is the government expenditureI is the total investment in the nationNX is the total net exports; (Exports-Imports).

In most cases, every year’s GDP is simply a comparison to the previous year or quarter. For instance, when the third year or quarter reports a GDP of 5% more, it will imply that the economy has grown by 5 percent over the second year (Brezina, 4).Thus, since GDP is a full representation of economic growth and production, it has a relatively large impact on nearly every aspect in the economy. When a certain economy is considered healthy, there are a number of related characteristics; low rate of unemployment and an increase in the level of wages as many businesses demand more labor in order to cater for the ever growing economy (Brezina, 20).

Any slight change in the level of GDP is significant to a given economy since it affects the entire stock market. Economists have always argued that any bad economy is always associated with lower profits which implies that there are lower prices o stock in the markets. Thus, many investors in any economy will ever worry about the negative growth of GDP as it is a sole factor used to determine if an economy is on recession or not. A recession is associated with declining revenues in businesses, unemployment and layoffs (Lochner, 3).

Moreover, when the growth rate of GDP is relatively fast, most Federal Reserve raise the rates of interest in order to stem inflation or rather the increasing prices in an economy. This could imply that the loans which are meant for homes and cars will become more expensive and thus businesses will experience high cost of borrowing. GDP is an extremely important measure in any country’s economy. Despite the fact that GDP cannot be easily determined, its value represents so many aspects in any given economy.

This measure is significant to overall spending of a nation since depressions and recessions of a particular country are largely caused by the overall rate of spending. Furthermore, GDP is a measure of confidence since when the government, companies and individuals spend; it is a likely indication of a growing economy. However, when no one is spending, it is a likely indication of a contracting economy. Therefore, this measure is appropriate as it entails all the factors that can enable us to obtain the economic values or levels we are interested in (Wenzel, 17).

Work CitedBrezina, Corona. Understanding the Gross Domestic Product and the Gross National Product. The Rosen Publishing Group. 2011. PrintLochner, Martin. Are GDP/GNP Appropriate Measures of Development? GRIN Verlag. 2013. PrintWenzel, Tina. Beyond GDP – Measuring the Wealth of Nations. GRIN Verlag. 2009. Print