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Economic growth as a measure of gdp

Topics: Gross domestic product, Economics, Value added, Economic growth / Pages: 2 (493 words) / Published: Dec 4th, 2014
Sion Malde- 12X-Ec1 Mr Mahajan

To what extent is economic growth a useful measure of economic performance

Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured by gross domestic product (GDP) and this can give us a measure of economic performance. Actual economic growth is an increase in GDP. There are various distinctions used in the context of economic growth such as nominal GDP so the face value and real GDP which is when GDP is adjusted for inflation. It can be said that economic growth can be a useful measure of economic performance because GDP can be calculated per capita, or per head of population.
Economic growth can be calculated all over the world and so it is universal since all of country’s products have a certain monetary value, which added up gives a universally recognised measure. It is a useful measure because it summarizes a whole range of economic information in and determines the comparative strengths and weaknesses of various sectors, thus giving us a good indication of economic performance as a whole country and in detail. It shows you how well an economy is doing so if it is a healthy economy, and if not it can identify what the problem is thus measuring the economic performance.
However, everything has its limitations and GDP is no exception when using economic growth to measure the economic performance. GDP figures on their own do not show the distribution of income and the uneven spread of financial wealth. Incomes and earnings may be very equally distributed among the population and rising national prosperity can still be accompanied by rising relative poverty. Non-market transactions - GDP excludes activities that are not provided through the market, such as household production and volunteer or unpaid services. As a result, GDP is understated. Another reason why it is not a useful measure is because GDP does not consider any subsistence (A system reliant on the self provisioning of the community) , barter (Trading in which goods or services are exchanged without the use of cash) or the black economy these are all usually untraceable, and hence untaxable and thus not reflected in a countries GDP. Finally, GDP also fails to account for reductions in quality of life and losses to natural disasters or crime. The destruction that is brought by an earthquake, for instance, would not be accounted for in GDP accounting, but the rebuilding efforts would be counted.
Overall, since everything has its limitations I believe that using economic growth is useful in moderation, as its cons far way out its pros. However, we would not be using it to measure economic performance in today’s economy if it wasn’t at all useful. So in my aspect there is some usefulness as it still gives a certain figure which is very easy to measure and analyse.

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