Question

Prior to the Great Depression, it was rare to see anyone tracking the size of ‘the economy,’ and the Gross Domestic Product (GDP) measure did not yet exist. What economic and historical advantages did the creation of the GDP bring for the U.S.?

Answer 1

Before the great depression, it was believed by economists that the free-market system would work efficiently and there would not be any need for government intervention to correct the disequilibrium in the economy. thus, the economy was believed to operate at the full employment level.

After the great depression, the economy started operating below the full employment level. or GDP was below the full potential level. Now the need for the knowing the potential and actual GDP arose across the world. Thus, now the government made huge efforts to calculate the GDP to know the exact condition of the economy. Through the estimation of GDP government can correctly calculate the potential loss of job and consequently needs to drive up the economy through the stimulus actions.

No government even take the right measure to deal with the recession without the idea of actual and potential GDP. The economic crisis of 2008 was aptly reckoned with by the government only because of easy availability of datas concerning the GDP of country.