GDP - Gross Domestic Product Essay Example | Topics and Well Written Essays - 1500 words

GDP - Gross Domestic Product - Essay ExampleNominal GDP is the GDP according to current division prices while real GDP accounts for the effect of inflation on prices and is therefore also known as inflation adjusted GDP. By the use of a base year and elimination of effects due to price changes, real GDP allows useful comparisons to be made regarding the production of goods and function in an economy. For typeface if the economy were growing at the rate of 4% per year while the rate of inflation was 1% then only 3% of the growth would be due to an increase in the economic output while 1% would be only due to price changes. GDP per capita describes the average number of goods and services consumed per person in a country. The significance of GDP as an instrument for channeling of aid and investments into countries is highlighted by Canoy and Lerais in the research titled Beyond GDP that was make up for the European Commission in which they say GDP is the best-recognized measure of economic performance in the world, often used as a generic indicant of well-being. GDP is used in a large variety of political and financial arenas. It serves as a criterion to decide who has access to funds at international organizations such as the EU, UN, IMF and World Bank, GDP plays an important part in the Stability and Growth Pact, and it is a lead indicator for forecasts of financial markets and banks, to give ear just a few examples. It is also used for international comparison and rankings and plays a crucial role in political debates. (Canoy and Lerais, 2007) The GDP of any inclined country fails to adequately explain its overall economic well being since its calculation either excludes or overstates a number of crucial aspects that describe the beat of living of a population. The notion of well being has been described as a multidimensional concept with both an individual interpretation in the wayfaring spirit and a collective one to capture the progress of a nation (Canoy and Lerais, 2007). Although GDP per capita i.e. goods and services consumed by the average person measures the spending by an individual yet it does not accurately depict an individuals well being. Materialistic expenditure is not all that characterizes individual well being. Rather it is a ofttimes more comprehensive idea including psychological well being as well as happiness derived from non material sources. An individuals health, diet, achievements, mobility and participation in society are all essential sources of contentment that are not included in calculation of GDP.