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Eco 360/ Economic Indicators Essay

1962 words - 8 pages

When one speaks of the economy they should speak of it as if it were an animate object. An economy may healthy, productive or efficient. Likewise, an economy may be weak, slow or inefficient. The question is how do we know how to classify our economy? GNP -GROSS NATIONAL PRODUCT. Economists have devised numerous statistics designed to ascertain the overall health of our economy. Historically, the most quoted measure of economic activity is what is called Gross National Product (GNP). The Gross National Product (GNP) is a nation's total output of goods and services produced BY a country in one year. In obtaining the value of the GNP, only the final value of a product is counted (e.g. homes but not the construction materials they were built with). The three major components of GNP are consumer purchases, government spending, private investment and exports.The Gross Domestic Product (GDP) is the monetary value of all goods and services performed in a nation in one year. GDP measures the economic strength of a nation. It is computed by multiplying the quantity of all goods and services by its price. When this is done for all three categories, Consumer spending, Government Spending and Investments, the results are added to give us the GDP. In the last several years GDP has gained favor as a more accurate barometer of the state of the economy. With growing globalization our economy is increasingly reliant on goods we produce beyond our national borders. While GNP does not calculate this, GDP does. Though the GDP and GNP are the most widely used system of determining a nation's economic performance, they are certainly not perfect. There are certain factors within the economy that keep the GDP and GNP from being the most reliable measurements.The first factors are reporting delays. Because the reporting process on a nation's monetary flow is so difficult to document, GDP estimates are made quarterly. The figures are then revised for months after that, so it takes a while to discover how the economy actually performed. Thus there is a disparity between the actual GDP and the reported GDP.The second factor is the composition of output. Generally, increases in the GDP insinuate that people had jobs and earned an income. However, the GDP alone does not tell the composition of the output. An increase in a certain amount of dollars may not mean that there was more output by laborers, but that the government undertook production of lets say, a certain weapon. A decline in GDP implies that the country is not doing as well as it was before. Yet this does not always hold true, because the decline could indicate a positive innovation such as a reduction in the number of car batteries produced because a new one entered the market that lasts for twice as long.The third factor is quality of life. The GDP, while it measures the production of a nation, has little to say about the state in which the citizens are living. For example, a new housing project may be built,...

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