Question

1. GDP can be viewed as the mother of all measurements of the economy- may be. Given your reading on GDP as well as other indicators on the status of an economy, do you think this indicator can best describe the economies of all countries around the world? Why? Why not?

2. It has been argued that a country should not rely on economic growth scenario but, most importantly, on measures of economic development. If we were to use GDP or GNP as a parameter to assess the health of our economy, do we need to examine the parameters in the context of economic growth or development? Is economic growth a subset of economic development or vice versa? Why?

Answer 1

1)

The Gross Domestic Product stands for the sum total value of all goods and services produced in the economy which are treated as final goods and are not to be used in the manufacturing process but are rather consumed by individuals and companies alike.

Over a period of time, the increase in GDP indicates that the demand in an economy is increasing. This is primarily due to higher income availability which gives people the edge in purchasing more goods and services for them.

Further, it can be used as a measure to depict all economies of the world, as the same standards are used to evaluate progress. GDP includes the final value of goods and services as depicted in the local currency value which can be monitored closely on the exchange rate.

When we compare the total value of GDP we get to know, the changes in investment and consumption patterns in the country as well as the increase or decrease in income as the case may be.

Due to this universal treatment of the calculation of GDP it indeed in my opinion can be used as a measure to compare countries on the basis of the measure itself.

Though, additional measures such as Health Care Index, Education Index etc may be used, GDP is the best measure in depicting the current status of any economy and comparing it with others. This is because most economies follow similar methods to calculate GDP and the measure in itself is a correct indication of the income level and demand and supply in the economy.

2)

Increase in GDP is a resultant of increase in total development in a country. This development arises from the increase in capital expenditure, health care development, educational facility development and other similar variables.

However, GDP in itself does not measure development in a country but its growth. This is because it does not measure variables such as health care, income inequality, education etc.

GDP is only an indicator of economic growth and not of development in various factors. It provides us with the final output but does not give us a measure of how this output has been increased or decreased even though it depends on the same.

We can conclude by saying that growth is a subset or a result of development in any country. When we invest in facilities such as healthcare, education and strengthening the economic development, it is then that we grow and the GDP increases in value.

GNP is nothing but it includes GDP as well as foreign income from abroad which is the cost of exports minus the cost of imports in the country. It is a similar measure but includes the element of foreign receipts and payments also.

Even though GDP is an indicator of growth it is a quantitative measure and not a qualitative one.

Please feel free to ask your doubts in the comments section.