Essay Example on GDP: Key Statistics for Economists & Policymakers

Introduction

Gross Domestic Product (GDP) is relied upon by every nation's economists, policymakers, businesses, officials of the government and the citizens, to aid in the assessment of the economy's stability and embark on practical and functional decisions (Park et al., 2019). The statistics related to the GDP of any country helps its economists establish proper research techniques and approaches. The policymakers depend on the economic statistics provided by GDP in the encounter of relaying decisions concerning policies of trade, taxes and rates of interests.

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GDP helps the central banks and the policymakers to have the ability to predict whether the nation's economic status is growing or diminishing overtime (Picardo, 2016). It also shows whether the economy deserves efforts in terms of restraints or boosts and if there are chances of emergence of inflation, boom or recession. The accounts of products and national income are therefore easier to determine as they are the scope of GDP of a country. Thus, it permits the economists, businesses and policymakers to carry out the analysis regarding the effects of crucial variables like fiscal and monetary policy. These economic threats could be inclusive of escalation of prices of oil.

The Shortcomings of GDP in Measuring a Country's economic health

Gross Domestic Product at times reveals inaccuracy regarding a country's economic prosperity. For instance, it does not consider the records of the underground economy, which is primarily comprised of illegal and secret businesses like prostitution, drugs, weapons, and any other black-market dealings. The magnitude of underground economies differs tremendously among countries because, in some scenarios, they are responsible for a significant percentage of a nation's output economically. Keeping reliable and traceable records concerning the economy of underground markets are nearly not possible because of its illegitimate nature. It is therefore hardly included in a country's publishable figures of GDP (Picardo, 2016). The factor may contribute to the understatement regarding a nation's Gross Domestic Product Report.

Gross Domestic Product may also show inaccuracies in determining the actual economic status of a country in terms of Non-market Production, which involve the production of goods and services aiding private consumption (Picardo, 2016). The type of output is often off the official economic record, for example, the government of a country would find it impossible to put into files the individual growing food just to eat it, or an own harnessing his power. The implication here is that the GDP of the nations that are comprised of many subsistence farmers will be under-estimated, as compared to those that have less or no subsistence farmers.

Using the Gross Domestic Product to Evaluate the Business Cycle

Business Cycles refers to the economic troughs, contractions, peaks and other seasons of unpredictable economic activities. GDP being a factor that affects the economy of a country, it also influences the shape of a business cycle at any given time (Park et al., 2019). Economic contraction slows down the output of the economy, often because of escalated costs of raw materials, reduced demands for services and products, or both. The result is that many companies will not manufacture many products or provide a lot of functions. Consequently, there would be reduced GDP in a country, thus the contraction phase in a business cycle.

Factors That May Affect the Business Cycle

Economic expansion is the recovery phase of a business cycle. The economic growth of a nation has a consequential effect on the GDP of a country; it increases it (Park et al., 2019). The rise in the Gross Domestic Product signifies the increased rate of production by the manufacturing companies, as well as the provision of services. There would then be many employment opportunities, a fact that would help in the thriving of businesses. Increased GDP, therefore, contributes to the existence of the expansion phase of a company, through an improved economy. The business cycle is also made up of other three stages, namely the Economic Peak, Expansion and Trough Phases (Batu, 2017). They are both influenced by a nation's Gross Domestic Product Prosperity.

The health of the Current US economy by its GDP, Business Cycle and Economic Growth

The current economy of the United States of America is though strong but shaken. The measure of the magnitude of goods that are manufactured and services that are offered by the economy of the United States of America in the current period has drastically diminished (Batu, 2017). The reason being, there is a reduced tendency of continued production of products as well as the provision of services like before. Consequently, The Business Cycle in the United States of America is greatly affected. The phases of the Business Cycle are, however, affected differently. Its aspects currently stand at Economic Contraction and Trough. Thus, stagnant economic growth.

A nation's measure of economic health depends on its Gross Domestic Product, Business Cycle and Economic Growth. The GDP determines a country's economy because it holds financial reports that are depended on considerably by the economic policymakers, businesses, citizens and the government officials into predicting and shaping the overall economy (Batu, 2017).

Conclusion

Generally, a country's economic prosperity is pegged with its status of Gross Domestic Product, the phases of the Business Cycles. Although the economy of a country is mostly defined using the approach of its GDP, other methods concerning the same are supposed to be incorporated. It would help boost the accuracy of the report of the annual economy, as these different alternative approaches would put into consideration the factors of the underground economy and non-market production.

References

Batu, M. (2017). International worker remittances and economic growth in a Real Business Cycle framework. Structural Change and Economic Dynamics, 40, 81-91. https://corporatefinanceinstitute.com/resources/knowledge/economics/gross-domestic-product-limitations/

Park, J. K., Ryu, D., & Lee, K. (2019). What determines the economic size of a nation in the world: Determinants of a nation's share in world GDP vs per capita GDP. Structural Change and Economic Dynamics, 51, 203-214. https://www.cliffsnotes.com/cliffsnotes/subjects/economics/what-are-the-advantages-and-disadvantages-of-gross-domestic-product

Picardo, E. (2016). The GDP and its importance. Retrieved from. https://smallbusiness.chron.com/relationship-between-gross-domestic-product-business-cycle-21751.html