The business world offers numerous examples of corporations benefiting from competition, as they have to increase their productivity, economise their cost, and need to strive for innovations. It is generally agreed, that from a microeconomics’ view firms seek to win this competition, which can be determined by parameters such as revenue, profit, or customer satisfaction. Ancillary, competition does not only prevail between companies on a microeconomics level but also among country’s economies on a macroeconomic level. This competition received a lot of attention in recent years, which is also biased by the shift towards a more integrated and interdependent world economy that can be referred to as the term globalisation (Hill, 2011, p.24). However, it needs to be questioned, how to contrast the performance of one economy with the performance of another. How can we assess national income or output? The measure that is widely accepted and used is called gross domestic product (GDP) (Sloman and Wride, 2009, p.393). The purpose of this paper is to briefly outline what exactly incorporates in GDP and mainly to examine whether GDP is a good measure of economic activity and well being.
Table of Content
1. INTRODUCTION
2. THE NOTION OF GROSS DOMESTIC PRODUCT
3. ISSUES WITH CROSS DOMESTIC PRODUCT
4. GROSS DOMESTIC PRODUCT AS A MEASURE OF WELL BEING
5. CONCLUSION
Objectives and Topics
The paper examines the Gross Domestic Product (GDP) as a metric for economic performance and evaluates its adequacy in measuring broader societal well-being and economic activity.
- Definition and calculation methods of GDP
- Distinction between nominal and real GDP
- Challenges in international GDP comparisons and currency conversion
- Limitations of GDP regarding non-marketed items and the underground economy
- GDP's relationship with social welfare, happiness, and life satisfaction
Excerpt from the Book
3. ISSUES WITH CROSS DOMESTIC PRODUCT
The dilemma that arises by comparing GDP of different economies is that national GDP’s are measured in the local currency. This means, that in order to compare the values they have to be converted into a common currency at the current exchange rate (Sloman and Wride, 2009, p.395). In order to compensate the unequally purchasing power of the local currency, GDP can be transformed into a common currency at a purchasing-power parity (PPP) rate. The PPP is a rate of exchange “that would allow a given amount of money in one country to buy the same amount of goods in another country after exchanging it into the currency of the other country (Sloman and Wride, 2009, p.395).
Furthermore, it occurs that some goods and services remain unrecorded, which has the effect of an understated GDP. This ensue due to both the non-marketed items, that includes work which is rather carried out by an individual itself instead of employing someone to carrier out this task, and the underground economy, that consists of illegal and therefore undeclared transactions that can either be goods and services that are illegal due to their nature or transactions that are not declared for tax purposes (Fox, 2012; Parkin, Powell and Matthews, 2005, p.448). In a similar vein, the Stiglitz Commission found that, both committing certain types of crime and buying petrol can have the impact of a surge in GDP but will not increase welfare (Stiglitz, Sen and Fitoussi, 2009). As such, this report point out that alternative component of the National Accounts may be better measurements of economic improvement.
Chapter Summary
1. INTRODUCTION: This chapter introduces the role of competition in the global economy and identifies GDP as the primary metric for assessing national output.
2. THE NOTION OF GROSS DOMESTIC PRODUCT: This section defines GDP as an aggregate measure of market output and explains the distinction between nominal and real values.
3. ISSUES WITH CROSS DOMESTIC PRODUCT: This chapter discusses technical and structural challenges, such as currency conversion, PPP, and the omission of non-marketed activities in GDP.
4. GROSS DOMESTIC PRODUCT AS A MEASURE OF WELL BEING: This section explores the criticism of GDP as a welfare indicator and discusses potential alternatives like the Human Development Index.
5. CONCLUSION: The final chapter summarizes the findings, reiterating that while GDP is a useful tool for measuring economic output, it is insufficient for capturing holistic well-being.
Keywords
Gross Domestic Product, GDP, Economic Growth, Well-being, Globalization, Purchasing-power parity, Underground economy, Non-marketed items, Welfare, Life satisfaction, Human Development Index, Macroeconomics, National income, Economic indicators, Social progress
Frequently Asked Questions
What is the primary focus of this paper?
The paper examines the relevance of Gross Domestic Product (GDP) as a metric for economic activity and questions its suitability as a comprehensive measure of societal well-being.
What are the central thematic areas discussed?
The study covers the definition of GDP, methods of calculation, the difficulties of cross-country comparisons, the impact of the underground economy, and the relationship between economic output and life satisfaction.
What is the core research question?
The core research objective is to outline the components of GDP and evaluate whether it serves as an accurate measure for both economic activity and overall human well-being.
Which scientific methods were employed?
The paper utilizes a literature-based analysis, synthesizing economic theory from various academic sources and institutional reports to critique current economic measurement practices.
What topics are covered in the main section?
The main sections address the definition of GDP, the methodological challenges of international comparisons (such as PPP), the limitations regarding unrecorded economic activities, and the debate surrounding GDP vs. social welfare indicators.
Which keywords best describe the paper?
Key terms include Gross Domestic Product, Well-being, Economic Growth, Purchasing-power parity, and Social Progress.
Why does the author mention the "underground economy"?
The author identifies the underground economy as a source of unrecorded transactions that leads to an understated GDP, demonstrating the limitations of GDP as a complete record of economic activity.
What is the significance of the Stiglitz Commission in this study?
The Stiglitz Commission is cited to illustrate that certain activities, such as crime or petrol consumption, can artificially inflate GDP numbers without actually contributing to genuine social welfare or quality of life.
- Arbeit zitieren
- Sebastian Kress (Autor:in), 2012, Is GDP a good measure of economic activity and well being? , München, GRIN Verlag, https://www.hausarbeiten.de/document/192532
