Question

Comparison of economies to determine the greatest potential for profit growth (Include charts with GDP and GDP per capita)

What might you use to compare the economies of your 2 countries to determine which of your 2 countries has the greatest potential for profit growth? Name the topic and follow with a reason why in 2-3 sentences. You ARE NOT to define the term but tell why you will use it.

Example: Population growth. To grow an economy you need people. So as the population grows you’d have more people to contribute to the production and at the same time consumption.

Answer 1

Economists and statisticians use several methods to track economic growth. The most well-known and frequently tracked is the gross domestic product (GDP). Over time, however, some economists have highlighted limitations and biases in the GDP calculation. Organizations such as the Bureau of Labor Statistics (BLS) and the Organization for Economic Co-operation and Development (OECD) also keep relative productivity metrics to gauge economic potential. Some suggest measuring economic growth through increases

Economists and statisticians use several methods to track economic growth. The most well-known and frequently tracked is the gross domestic product (GDP). Over time, however, some economists have highlighted limitations and biases in the GDP calculation. Organizations such as the Bureau of Labor Statistics (BLS) and the Organization for Economic Co-operation and Development (OECD) also keep relative productivity metrics to gauge economic potential. Some suggest measuring economic growth through increases in the standard of living, although this can be tricky to quantify.

Gross Domestic Product

The gross domestic product is the logical extension of measuring economic growth in terms of monetary expenditures. If a statistician wants to understand the productive output of the steel industry, for example, he needs only to track the dollar value of all of the steel that entered the market during a specific period.

Combine the outputs of all industries, measured in terms of dollars spent or invested, and you get total production. At least that was the theory. Unfortunately, the tautology that expenditures equal sold-production does not actually measure relative productivity. The productive capacity of an economy does not grow because more dollars move around, an economy becomes more productive because resources are used more efficiently. In other words, economic growth needs to somehow measure the relationship between total resource inputs and total economic outputs.

The OECD described GDP as suffering from a number of statistical problems. Its solution was to use GDP to measure aggregate expenditures, which theoretically approximates the contributions of labor and output, and to use multi-factor productivity (MFP) to show the contribution of technical and organizational innovation.

Gross National Product

Those of a certain age may remember learning about the gross national product (GNP) as an economic indicator. Economists use GNP mainly to learn about the total income of a country's residents within a given period and how the residents use their income. GNP measures the total income accruing to the population over a specified amount of time. Unlike gross domestic product, it does not take into account income accruing to non-residents within that country’s territory; like GDP, it is only a measure of productivity, and it is not intended to be used as a measure of the welfare or happiness of a country.

The Bureau of Economic Analysis (BEA) used GNP as the primary indicator of US economic health until 1991. In 1991, the BEA began using GDP, which was already being used by the majority of other countries. The BEA cited an easier comparison of the United States with other economies as a primary reason for the change. Although the BEA no longer relies on GNP to monitor the performance of the US economy, it still provides GNP figures, which it finds useful for analyzing the income of US residents.

There is little difference between GDP and GNP for the US, but the two measures can differ significantly for some economies. For example, an economy that contained a high proportion of foreign-owned factories would have a higher GDP than GNP. The income of the factories would be included in GDP as it is produced within domestic borders. However, it would not be included in GNP since it accrues to non-residents. Comparing GDP and GNP is a useful way of comparing income produced in the country and income flowing to its residents.

Productivity vs. Spending

The relationship between production and spending is a quintessential chicken-and-egg debate in economics. Most economists agree that total spending, adjusted for inflation, is a byproduct of productive output. They disagree, however, if increased spending is an indication of growth.