Slavin argues that knowing the economic growth of a company is extremely crucial for planning purposes (2). Also, Slavin suggests that it is incredibly necessary for a country to know the living standards of its people to be able to prioritize its development agendas effectively (2).
Slavin argues that analysis of a country’s gross domestic product (GDP) is one of the surest ways of measuring economic growth and the living standards of people in a country. Therefore, the GDP figure acts as a useful tool for gauging how a country is performing economically (11).
Slavin defines GDP as the value of all commodities and services a country produces within a specified period (12).
In measuring GDP, analysts normally take into consideration a country’s public and private expenditures, total investments, government spending, as well as the imports and exports.
Taylor notes that analysts normally compute the GPD figure every year (5). Slavin argues that knowing GDP is essential since it represents the economic growth of a country (12).
For example, a GDP of 3% simply implies that a country only realized an economic growth 3% in the previous year. This provides the best statistics for measuring a country’s economic health.
Therefore, countries normally compute their GDP as a way of measuring how a country is performing economically. This is attributable to the fact that GDP acts as a measure of the economic growth realized within a given period (Slavin 13).
Several countries also use their GDP as a tool for planning the various development agendas. Taylor claims that no country can plan effectively without knowing the rate of its economic growth (4).
As earlier indicated, the GPD figure assists in gauging the economic health of a country. For example, when the GDP arrived at shows positive economic growth, this normally implies the living standards of people in a country have improved.
Taylor attributes this to the fact that an improvement in GPD implies an increase in employment, poverty reduction, wage increase, as well as the growth of investment (9).
Taylor claims that such a GDP figure is good for a country since it shows that the economy is stabilizing, which is a good indicator of investment.
However, a decline in GPD shows difficult economic times, which is not good for a country since it implies that the government is not doing enough to improve the living standards of its people (Taylor 9).
Real GDP and Nominal GDP are some of the most common measures of a country’s growth. According to Taylor, real GDP measures how much the economy of a country is producing (7). When calculating real GDP, analysts normally leave out inflationary effects.
These give analysts the opportunity to compare how much the economy is producing each year. Nominal GDP, on the other hand, is also a measure of what the economy is producing.
However, unlike real GDP, nominal GDP factors in the inflationary effects, in the estimates. This is the most striking difference between the two and explains why the resultant nominal GDP number is normally slightly higher than that of real GDP.
The two measures of GDP are essential for a country since they act as a tool for gauging a country’s economic growth. Slavin argues that the computation of real GDP is crucial since it shows how much a country is producing (22).
Also, real GDP also acts as a tool for comparing the size of economies of different countries all over the world (Slavin 22). Nominal GDP, like real GDP, also acts as a tool for comparing the economic size of different countries.
For instance, analysts can easily compare the size of America’s economy with that of China using nominal GDP figure. Also, nominal GDP, like real GDP is a useful statistic for measuring how much the economy of a country is producing.
Slavin, Stephen. Economics, New York, McGraw-Hill Education, 2010. Print.
Taylor, John. Principles of Macroeconomics, Manson, Ohio: Cengage Learning, 2006. Print.