Gross domestic product (GDP) can be described as the measure of a country’s economic activities in order to determine value of produced goods and services within a particular time period which in most cases is one year. In regards to this, GDP provides the monetary value of the total output of goods and services within the specified period. GDP The use of GDP to measure economic welfare faces a number of changes the first one being the failure to recognize externalities. The computation of GDP occurs at market prices meaning that such calculations ignore externalities within the market, more so the environmental ones. On a similar note, GDP disregards products that are not part of trading activities (Wenzel 2009).
Wenzel (2009) explains that non-market production has a lot of value in the economy and so do the activities of the informal sector yet GDP does include such value when measuring the performance of the economy.GDP does not highlight the input of people as well as other costs incurred in producing outputs thereby leading to a possibility of real income understatement. Most important of all, GDP fails to consider how the output of a nation contributes to the quality of life for the citizens.
Economic growth is a concept that entails an increase in the market value of products generated by a country overtime. Bishop argued that investment makes the economy vibrant due to the increase in capital such as information technology, new factories and machines across all sectors. In perspective, a country is able to maximize on the use of scarce resources as the investments facilitates better efficiency of operations that in turn stimulates productivity.A rise in investment results to an increase in aggregate demand which ultimately boosts economic growth.
Productivity, the quantity of output that a country is able to produce given the units of input, is a critical factor in determining economic growth. Objectively speaking, for a country to increase the rate of growth, it has to increase the level of output not only for the purpose of becoming self-sufficient but also to engage international trade. With a higher productivity, a country is able to strengthen its competitiveness on the international market. The move increases incomes from exports.
Accordint to Arnold (2008), the measurement of the official rate of unemployment faces a number of limitations that deter it from being a perfect employment indicator. First off, discouraged workers fall out of the labor force definition precisely because such individuals want jobs but have given up the search for one. This interferes with the calculation as the reported rate of unemployment tends to be lower than it actually is. Secondly, the statistics considers some underemployed individuals as employed. Part-time workers seeking full-time jobs form the underemployed group.
Benefit collectors who are not job seekers are yet another challenge. The state office requires people to seek employment so as to enjoy insurance benefits but most recipients of such benefits do not desire to work making the reported rate of unemployment higher than it would have been. When computing, economists should bear in mind the reasons as to why the unemployment rate is lower or higher than the previous periods by outlining the underemployed and discouraged employees (Mankiw 2014).
With regard to income, factors such as dispersion of hourly wages among full-time and part-time workers createinequality among the employees. Other aspects include inequality in terms of wages earned by the workers across different sectors of the economy including self-employed individuals. From a different angle, the poverty rate argument looks at inequality by focusing on the disparity of ownership of wealth among households in the society and whether the expenses of such households exceed a dollar each day.
The workshops have changed my perspective on economic growth because I now understand that the labour force plays an active role in driving growth. The interesting thing that I learnt is that the expenditure approach of computing the GDP should not only focus on Consumption, Investment, Government Expenditure, Exports and Imports but should encompass externalities, non market production and state how the country’s output impacts on the welfare of citizens.