Nowadays, gross domestic product (GDP) is the prime measure for economic performance in different countries around the world. Governors or politicians using this figures to make economical decisions for years. However, controversy indeed surrounded the economist about whether they should gauge the economics statues with other metric rather than GDP as the rapid growth in recent years has changed the main target for the leaders in different countries.
GDP measures have been started since the Second World War, which was used to monitor the war production level. This brings out that the definition of GDP is the final value of all goods and services produced in a country per period of time, which is the products produced within a country and those products that are sell and purchase through the market at a price where consumers willing to pay and producers willing to sell. It can also tell us how the economy is performing during four different quarter per year.
For instance, since 1955 there are several times for British economy suffered recessions (two continuous quarters of negative economic growth), which can be shown by GDP indicator (two separated period of recession):
Year and quarter
Growth of GDP% in Year, quarter
Nominal Gross Domestic Product
Real Gross Domestic Product
By the table we can see that there are three different figures, which are growth of GDP(%), GDP and real GDP. From the growth of GDP, this is the rate that we can deduce whether this country is in recession(%0). The difference between Nominal GDP and Real GDP is that the former is measured by the current price while the latter is measured in constant price. Real GDP is helps us to make a comparison in output across different years as we have choose a basic year to set up a constant price.
For these two different years in the table above, the recession has taken at least 3 continuous quarters, as the growth of GDP was negative in those two periods. As Nominal GDP evaluated at current prices in that year which is all the prices changes due to the inflation or deflation were recorded, while Real GDP was in a constant price chosen from basic year, therefore, this is the reason why the amount for Real GDP is relatively less than Nominal GDP because Real GDP adjusted the inflation level.
Also we can use this two Real GDP and Nominal GDP to search another useful measures which is GDP deflator:
GDP deflator = NOMINAL GDP
As the equation shows, the GDP deflator is the ratio of nominal GDP and real GDP, which can measure the general inflation in the domestic economy. For example, the inflation index number for the quarter 4 of 1991 is 1.45.
In the table above, the recession has taken at least 3 continuous quarters, as the growth of GDP was negative in those two periods. As Nominal GDP evaluated at current prices in that year which is all the prices changes due to the inflation or deflation were recorded, while Real GDP was in a constant price chosen from basic year, therefore, this is the reason why the amount for Real GDP is relatively less than Nominal GDP because Real GDP adjusted the inflation level.
However, GDP still brings us other problem as it excludes all other factors in the market expect the output of goods and services we consuming and selling.
Firstly, one of the point that the governors should notice is the inequality of income in different countries, this is a beginning for other problems such as high criminal rate, poor health care and low literacy level which also will causing high unemployment rate in future. Basically, GDP does not specify how income is distributed in the...
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