GDP and Economic Indicators "Gross Domestic Product Essay

GDP and Economic Indicators

"Gross Domestic Product and other economic indicators"

GDP and other economic indicators

Q.1) Define:

Gross Domestic product:

Gross domestic product is the value of all the good and services of a particular country which is produced over a year's time. For the value to be accurate it is made sure that all the goods and services included are the ones produced inside the boundaries of the country. The goods and services may be produced by the nationals of that country and by the foreigners in that country, but the production has to be inside the boundaries of the country. The formula to calculate GDP includes five components which are the consumption by households (denoted by C), the government spending done (denoted by G), the investment done in the country (denoted by I), the imports that were done in that year (denoted by M) and the exports of that particular year (denoted by X). The formula is: GDP = C + I + G + (X - M). The basic reason for finding the GDP is to analyze how strong a country's economy is locally.

2. Real GDP:

The value of GDP that comes may always show an increase but the increase is not accurate as a certain percentage of inflation (increase in price level) might have taken place that year. Real GDP shows the inflation adjusted amount of GDP so the accurate increase or decrease in GDP can be calculated as compared to the year before, or a certain base year that is selected.

3. Nominal GDP: The calculation of GDP without adjusting for inflation is called Nominal GDP. It shows all goods and services at the value they were priced at in the current year.

4.Unemployment:

Unemployment is a condition when a person who possesses skills and is willing to do a job, cannot find a job, therefore is left jobless. Getting rid of unemployment by bringing it down as much as possible is one of the functions of the government. Unemployment also measures how well an economy is performing, as if the economy is going through a recession you will see a rise in unemployment. Unemployment gives a boost to the existing poverty in a country and also creates social issues.

5. Inflation Rate:

Inflation rate is the measure of general increase in price level over a year. It is measured by keeping a base year and comparing prices of all different types of commodities that exist in the market. This is done through the consumer price index (also known as CPI). There exist more price indexes such as the sensitive price index which tells price increase in eatable items and wholesale price index which shows increase in price level for wholesale goods.

6. Interest Rate:

Interest rate is the cost of borrowing. It is a tool used by financial institutions to charge people who borrow money and to give to people as an advantage when they save or invest money in the institution. It is calculated by multiplying a certain percentage to the amount borrowed or saved. Interest rates are used by the government in its monetary policy to control the flow of….....