The health of a country’s economy

The health of a country’s economy

It is true that the Gross Domestic Product is one of the primary indicators used to gauge the health of a country’s economy. It includes the total value of everything produced within a country’s boundary either by citizens or even foreigners as long as it is within the country’s periphery. I agree that with the post that GDP is measured quarterly and therefore needs to be revised regularly according to the updates received. The components of GDP include personal consumption expenditure (C), business investments (I), government spending (G), exports (X) and imports (M). From these components, we can use the two methods of calculating GDP using the formula C+I+G+(X-M).

The GDP, as much as it is mostly used to gauge a country’s economy, it should not be solely relied upon as it has some demerits that are associated with it. These shortcomings include underground economy which are cash and barter transactions that are not always recorded and used to support illegal trades. Another one is environmental abuses where producers increase their production rate without considering destruction to the environment. Increase in quality production and non-market production are other shortcomings associated with GDP. However, I strongly feel that the inclusion of government spending in calculating GDP should not be a shortcoming as government expenditure is known to speed economic growth. More spending by the government to develop social amenities may result in more investment thereby increasing the GDP.

Alternatives to measuring the rate of economic growth apart from GDP due to the above problems include Gross National Income and Green Gross Domestic Products. In as much as there are shortcomings in using the GDP to measure our economic growth, we can use these alternatives and compare them to GDP to assess if there is economic growth.

 

 
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