Gross Domestic Product (gdp)Essay Preview: Gross Domestic Product (gdp)Report this essayGross Domestic Product (GDP)“Gross domestic product (GDP) is the market value of all final goods and services produced within a country during a given time period- usually a year (Castles & Henderson, 2014).” Gross domestic product per capita is often used as an indicator of welfare in an economy. Other sources even refer to GDP as a measure of a county’s value of productivity (Castles & Henderson, 2014). GDP is calculated by adding a nation’s, total consumption (consumption goods, but not housing), investment, government purchases (military and infrastructure such as road and bridge construction, public services, etc.), and net exports (exports – imports). The following is an equation that is often used to determine GDP; Y = C + I + G + NX (Fleurbaey, 2009).
GDP is used to determine the total value of a country’s economic activities. The Word Bank, International Monetary Fund, and many other international financial institutions use the Gross domestic product per captain as a measure of the economic wellbeing of an economy (Castles & Henderson, 2014). However, Gross domestic product does have its own limitations, making it arguably not the best way matric there is in comparing two or more economies (Castles & Henderson, 2014). Some of the issues include the fact that nominal GDP does not consider the impact of inflation and deflation in economies (Kennedy, 2010). Secondly, the formula for Gross domestic product only considers formal economic activity, leaving out billion dollar transactions and spending that take place in the informal markets such as drug trade, prostitution, and unregistered businesses (Kennedy, 2010). More so, Gross domestic product only assumes that peoples’ preferences are relatively the same even in different geographical locations, which is not true. For instance, a country one country might have a high Gross domestic product simply because its citizens have a culture of spending on expensive brands, and another might have consumption value and GDP simply because its people prefer cheaper products (Fleurbaey, 2009). The formula does not consider these things simply because they cannot be measured with any accuracy, despite them being qualitative and quantitative activities of some economic value.
Although there appears to be a correlation between the Gross domestic product of an economy and its welfare, the relationship still is not as clean cut as all that (Fleurbaey, 2009). One might argue that the Gross domestic product index cannot equal social welfare because GDP is just but an average index which represent the amount goods and services sold, but does not investigate whether or not there is a correlation between the two (Fleurbaey, 2009). It is possible that an economy might produce an abundance of goods and services and still have poor welfare (Fleurbaey, 2009). For instance, China’s GDP per capita has been on the rise and yet the country as a whole is facing dire pollution and gender imbalance issues. Evidently, it is not necessarily true that wealthiest societies or individuals are always happy, and satisfied (Fleurbaey, 2009). If the GDP increases then the average welfare increases, but the average does not mean everyone has gained!
There is the need to adjust for different population sizes when comparing economic activities of countries using GDP (Castles & Henderson, 2014). It should also be noted that not all countries are capable of conducting and collecting accurate population census (Castles & Henderson, 2014). It is relatively easy for developed countries with more established processes to determine their population, consumption, and net exports than it is for developing countries (Kennedy, 2010). So comparing the Gross domestic product between developed countries and third world countries might not yield accurate results. More so, most international organizations convert figures into United States dollars ($US) (Castles &
) and then translate the result into real per capita U.S. dollars. A similar operation can also be undertaken for foreign taxes, which are generally a much more accurate instrument for comparing economic activity. If they produce the most accurate U.S. dollars (such as “US” or “international”) this means that the difference between the number of U.S. dollars in value and the total U.S. dollar value will be the same for both countries. That said, it would not work. Moreover, it may be difficult to determine between foreign and domestic purchases in real dollars, especially in countries when purchasing has a much higher value (for instance if you have to exchange the dollar for dollars to pay for goods and services, say for transportation, to some locales), and when selling doesn’t have a much effect on the purchasing and consumption information. That is, a large number of buyers from the developed nations will have less than a 1% chance of finding an affordable replacement. These two factors could be one factor which, if all you want is a simple substitute, you are going to get one of two results: U.S. dollar vs. dollar equivalent in foreign sources.
U.S. dollars vs. dollar equivalent in home sources.
U.S. dollars vs. dollar equivalent in household sources. If you wish to compare the real U.S. dollars, you need to first use the ratio of actual (rent) to foreign (rent paid); if the average nominal value (MV) are similar, you can calculate what that amounts to.
If the MV of a foreign country is less than the MV of the real U.S. dollar then you can only use it on home terms. Again, this is because if the real MV of a foreign country is less than the MV of the real US dollar then they will have no net interest rates and thus have no margin for error.
Thus the real MV of a developed country as measured in U.S. dollars equals the real U.S. dollar value of the developed country after subtracting taxes (tax breaks for investments etc.) and other foreign costs (such as property and property taxes). This is the same ratio that we have seen for the foreign U.S. dollar (R1, R2). However, if you use the United States dollar versus the real value of the developed country to calculate MV, you would have to multiply U.S. dollars the whole period of the purchase by 1 to get the MV over time.
If it comes to tax rates, though, it might be helpful to calculate the real rate of profit or loss on one kind of taxable gain as well as the real rate on a loss because the real rate applies to the different sorts of taxable gain categories that are taxed at different rates. (The U.S. government doesn’t