There are many indicators of macroeconomic performance. Out of
which Real GDP or Economic Growth is the best one .
Gross Domestic Product or GDP is the sum total of all the final
goods and services produced in a country during a particular period
of time.
Real GDP
Real gross domestic product (GDP) is an inflation-adjusted
measure that reflects the value of all goods and services produced
by an economy in a given year, expressed in base-year prices,
- Economic growth will always be a very important measure of
economic activity.
- Real wages, labour productivity and investment are closely
related as they affect real GDP and vice versa.
If there is positive economic growth, then national income is
rising, and this should enable higher living standards. Economic
growth usually helps other objectives, such as unemployment,
government borrowing and real disposable incomes.
Usefulness of GDP
- GDP is widely used across the world. It does give a rough guide
to the level of economic activity. A fall in GDP indicates
recession and rising GDP indicates growth.
- GDP does give a useful guide to the economic cycle and is a
useful indicator for monetary policy and fiscal policy.
- GDP is also measurable – it is objective. Well-being measures
which involve surveys become highly subjective.
- Economic growth means a rise in real GDP; effectively this
means a rise in national income, national output and total
expenditure. Economic growth should enable a rise in living
standards and greater consumption of goods and services.
- Higher GDP is an indicator of reduction in poverty. High GDP
means that people can enjoy more goods and services . High GDP
means that people have high standard of living.
- High GDP also indicates low unemployment as high demand will
result in high production giving employment to large number of
people.
- Higher economic growth leads to higher tax revenues (even with
tax rates staying the same). With higher growth, incomes and
profit, the government will receive more income tax, corporation
tax and expenditure taxes. The government can then spend more on
public services.
- High GDP indicates reduced debt to GDP ratio which is an
important indicator.
However there is other side of coin. There are certain
limitations of GDP.
- High Economic Growth or GDP also indicates inequality.There is
unequal distribution of income.Rich are becoming richer and poor
becoming poorer.
- Economic growth or GDP can cause negative externalities such as
pollution, higher crime rates and congestion which actually reduce
living standards
- Economic Growth also results in damaging the environment as it
has resulted in global warming and increased pollution.
- Economic Growth or GDP does not measure actual living
standards. The quality of life and quality of happiness is not
measured by economic growth.