Big Question : Why is economic growth so important to most Governments and what problems does it have in measuring economic growth.
Please write at least 400 words with an introduction and conclusion. Please include a full analysis of how and why the government measures growth and any problems the government has in using its economic indicator for economic growth.
Due in on Wednesday the 31st of October.
Good luck.
Mr Wickham
ReplyDeleteThe GDP (gross domestic product) is the measure of the total value of goods and services produced in an economy in a particular period. It can be measured in two different ways. This is a very important process in the economy of a country but on the other hand there may be some complications.
To measure the GDP we can use the output method: this involves adding up all the output produced by the various industries in the economy. Then there is the expenditure method: which is measured by adding together the final spending on outputs produced by a country. This includes the consumer spending (households), the investment spending (businesses), government spending (goods and services; investment) and finally net exports (the difference between export and imports).
The income method involves adding up all the incomes earned from producing all the goods that year. Pensions and unemployment benefit are not included.
The concept of GDP per head consists in taking a more accurate measure of the GDP of the population of a country. However it doesn’t explain how the income may be distributed between the different groups of society in a country. Real GDP takes in account inflation whilst normal GDP does not.
The problems that the government might face with measure the GDP are: there may be a lot of hidden economic activities such as undeclared items, houses, secret bank accounts abroad or lying about their salary in order to pay fewer taxes. There are different types of cyclical changes in a country with a increasing or decreasing GDP. When the economy is going poorly then there will be a recession, once it starts to go back up this is called at recovery and once it has reached the summit this is called an economic boom.
In conclusion the GDP can never be measured accurately or in a very fair way. But it is a rather good concept to be able to measure the growth and development of a country, if it is on the right path or in recession.
Happy Halloween to all ;)
xx
mister, i had to put mine into paragraphs because it didn't let me right so much on one post. did you get my email?
ReplyDeleteOvertime, an economy needs to be able to provide living standards so that people have more goods, more money and a higher standard of living.This is most likeñy to happen if there is a growth in GDP. The Gross Domestic Product is an economic indicator that measures the total value of goods produced in the economy in a given period. This period is usually yearly or quarterly (every 3 months). It is calcultated `per head´ devided by the number of population. There are two types of GDP. Nominal GDP is simply when prices rise, it increases the value of national output; but it will also cause people to be worse off as they now have to pay more for their products and so the purchasing power has gone down. This is an increase in nominal GDP. Soif only the actual amoiunt of output has increased will people benefit from the increase in GDP. This increase in actual outpuint is called Real GDP. This economic indicator is known as to be measured `per head´ of population; it is often more usefull of a measure more than just the total value of GDP. However, it does not help you explain how the income GDP might be distributred between the different groups in society. This measure is the most common measure of national income and indictes how the economy is growing. There are sevral ways of measuring GDP. The output method involves adding up the output produced by the various industries in the economy. However, it is important not to double-count outputs. The expenditure method is measured by adding together the final spending on outputs produced by a country these are consumer spending (by households), investment sending (by buisnesses on premises, machinery and equipment), government spending (on goods services and investment and finally net exports (the difference between exports and inports). For a final method we have the income method which consists in adding together the incomes earned from producing all the goods that year. Only incomes for producing outputs are included, transfer payments such as pendsions and unemployment beefit are not included
ReplyDeleteWhen it comes to measuring economic activity, the IMF (international monetary found) paper titled comprehensive measures of GDP and the unrecorded Economy has defined hidden economic activities such as ilegal production deliberately conceled from the public authoroties to avoid paymet of taxes.
ReplyDeleteThe standard of living is linked to GDP. someone's standard of living refers to the level of material comfort that they are able to enjoy in terms of goods and services that they can buy or use. As we have seen, GDP measures the total value of goods. GDP is a good measure of standard of living. It can also be used to measure and compare the standard of living between countries. But GDP is not withot its criticisms as an economic inacator. It does not take into account who may have benefited from any economic growth. Rising GDP does not mean a rise in standard of living for everyone. This refers to inequality in society. Another thing is that it does not take into account the harmfull effect of growth such as pollution or waste. GDP is also caulculated within a country using its own currency and any change in the value in its currency can change the value of its GDP when compared to another country who's currency has not changed. This is called international comparisons. The standard of living is also not the same as qualty of life. Having more goods is not always being better off or happier, this is more of a concept of life quality.
ReplyDeleteEconomic growth is something that governments want, but there is also the being able t okeep this growth and it is called sustainable eceonomic growth. This occurs when the growth is mantained over a period of time. An important aspect of sustainable growth is that there are investments for future generations. Investments might be in economic infraesatructures which helps the economy to be productive. It might be social and welfare investment such as things that help provide a healtier more educated population. Both of these types of investment improve the productive capacity of the economy over time. Every economy has what economists call a trade cycle. The nature of an economic growth is that it does not happen in a steady way. Economies experience periods in which the rate of growth can be defined in different ways, when the rate of growth is falling or even negative, this is called recession , when the economy moves away from recession, this is called a recovey and when this can lead to periods of Boom, where there is a high economic growth. The cycle of growth and recessiion is called the trade cycle. Now, simultating growth in the economy is key to preventing or minimising th effects of the recession. The gvernment can for example make it easier for buisnesses to conduct buisnesses by foing things such as lowering taxes and so the costs will fall. Providing incentives for buisnesses to ste up in growing industries. Also there are things such as employing people in productive activities in the public sector or encourage investment by both public and private sector.
ReplyDeleteAnother economic indicator is the Human Development index (HDI). This is a broader method of using quality of life. It was developed for the united nations development programme. It's · main elements are standard of living, life expectancy and education. Achievements for each of these is measured by how far a country has gone in attaining some goals. These goals are to start off with, a country has to have real GDP at $40,000 , a life expectancy of 85 years and adult literacy and enrolments at 100%. These goals are only ideal, and countries are valued using the decimals from 0 to 1, in relevance to the goals. The ranking can be very high, high, medium or low.
ReplyDeleteIn conclusion, a government's priority is an conomic growth, a sustainable economic growth, and it is very important because of many reasons; maily because firstly, incomes within the certain country will rise and will be rising, so will the standard of living and also the government can rise more taxes and use this money to meet objectives.
ReplyDeletesorry mister, i started without knowing what to put and then i got over excited :s i hope you like it, ive spent a whole day on it :) happy haloween to you all
ReplyDeletexoxo
Economic growth is an increase in the capacity of an economy to produce goods and services compared from periods.Economic growth includes inflation or deflation. One of the ways of measuring Economic growth is the Gross Domestic Product (GDP). The GDP is used to compare countries with other countries to see how well they are doing economically. GDP measures the total value of goods produced in a period of time. Economic growth is important to the government because with economic growth the country can prosper by providing better living standerds and increase its sustainable rate of growth. WIth the increase in economic growth people have more goods to consume, more leisure time and better environmental and living conditions.
ReplyDeleteThere are three main methods of measuring GDP which are the output method, the expenditure method and the income method. The output method involves adding up the output produced by the various industries in the economy, it is important not to double count the outputs for example counting oil and manufacturing when they are both from the same category. The expenditure method is measured by adding together the final spending on outputs produced by a country which are consumer spending, investment spending, Government spending and net exports. The income method involves adding together the incomes from producing goods that year. The income method does not take into account transfer payments such as pensions and unemployment benefit.
GDP is can be measured in two ways one is GDP per head and the other is Real GDP. GDP per head can be a better measurement than just the total value of GDP. However it does not show how the income is distributed between the different groups in society. Real GDP takes into account Inflation which can distort increases in GDP therefore economists use real GDP rather than nominal GDP to have a more accurate view.
However GDP is hard to count since there is underground economic activity which is kept away hidden from authorities.
Since 1070 GDP has been criticized for firstly not taking into account the people who do not benefit from an economic growth (inequality in society), Secondly that GDP only measures the value of goods produced and does not take into account pollution and waste, Thirdly that the GDP is counted in the currency of the country so when it is compared with another country they have to use their currency which through the exchange rate can increase and decrease the amount, And lastly it does not take into account the quality of life. Having more goods does not mean the same as being happy.
The Human Development Index (HDI) is an alternative measurement developed by the UN which takes into account standards of living (as measured by GDP per head), life expectancy (from birth) and education(adult literacy and enrollment ind education). The goals for each one are $40,000 in real GDP per head, 85 years of life expectancy and 100% in education. However HDI also has problems which are that it does not take into account the environment, too narrow a range of indicators.
Another measurement of development is the Human Poverty Index which takes into account the people below the poverty line the rate of unemployment.
In conclusion GDP has its flaws and has alternative ways to measure development such as the HDI and the HPI and that the economic growth is important to the government so the population can have a better standard of living.
Economic growth is an increase in the amount of goods and services produced by an economy over time, on which the government has the biggest role.26
ReplyDeleteThe economic growth is very important for any government, because throughout the time the government needs to provide better living standarts for people, so with time people have more goods and services available, leisure time, health, money to consume, living standarts. Throughout the time the economic growth is falling (going to recession) and going up again (recovery) and sometimes can cause a boom, which is called Trade Cycle.
Economic growth is likely to happen if there is an increase in the GDP which is Gross Domestic Product. It is the measurement of the total value of goods and services in a given period (usually 3 months or 1 year). It is calculated «by head» (GDP/populations). The GDP is very important because the rise in GDP means that there is more income in the country, because of the wider trade; the standart of living is rising as soon as people have wider variation of goods and services to consume. For government it is also very profitably, because they pay more taxes to be able to produce and sell goods and services; these taxes help the conomy to rise because more money available for development (e.g. we can provide more public goods).
Also the governments measure the growth to compare one country's living standarts to another. Usually compared by the GDP level.20
The GDP can be represented in 2 types: Nominal GDP and Real GDP. The Nominal GDP is the simple rise in the total amount of goods and services, where as the Real GDP takes into account inflation so it works out the benefit minus inflation's problems, it is more likely to be used for measuring the living standarts, as soon as it is actual improvement. (Like revenue and profit ☺)65
There are few ways of measuring GDP. One of them is output method which is just be adding all the output of all industries in the economy (and then divide by the population). It is important not to double-count the output as for example oil is used for manufacturing. Another one is expenditure method which is used by adding all the spending on goods and services together (and by population). These spendings include consumers spending and government spendings with exports as well as soon as the money is still brought to the economy. The last one is used by adding all the income earned by producing goods and services. The transfer payments such as pensions and benefits for unemployments are not included. 126 437
Hovewer the GDP measurement is not the perfect way of measuring the economic growth, because of few reasons. The first is certain, that people are divided to rich and poor so they spend, produce, earn differently (in any 3 methods it is a problem). Another reason is that measures only the development but doesn't count the costs which are harmful effects like ecological problems with pollution. Also the amount of goods available doesn't make all the life better, people still have lot's of problems with health, with stress. Another problem is that changes in currency of one country can affect the GDP of the economy where as another country's currency hasn't changed.
In economic activity we use the IMF (International Monetary Fund) paperwhich is titled Comprehensive Measures of GDP and the Unrecorded economy, by term «unrecorded» means hidden from economy as for example saving money out of bank, these money are not recorded as long as they are not in use. It is called «legal production deliberately concealed from the public authorities to avoid payment of taxes».
ReplyDeleteAlso to measure the economic growth we use HDI (Human Development Index) and HPI (Human Poverty Index).
HDI was developed by United Nations Development Programme. There are 3 main statements: standarts of living as measured by GDP per head, life expectancy at birth, education measured by adult literacy and enrollment in primary, secondary and tertiary education. The goals of the 3 areas are real GDP 40.000$ «per head», life expectancy of 85 years, adult literacy and enrolments of 100%. No one country has yet fully achieved all these goals.
The problem of HDI that it doesn't take into account the effects of economic growth on the environment. In Scandinavia it is criticised for too narrow range of factors.In India the government in more concerned on placing more emphasis on measuring the infant mortality rate than life expectancy.
HPI is another alternative way, it was created by the United Nations which regard it as a useful way of measuring human deprivation. It includes indicators as to the proportion of people living below the poverty line and the rat of unemployment. It is considered as a more accurate way of measuring deprivation than the HDI in highly developed countries as it includes the poverty line.
In conclusion the economic growth is the government main aim as it is the main factor of the situation in the country. Hovewer they have got lots of hard, complicating ways to measure and so to see the exact situation and non of them are without gaps and negative sides.
Gross Domestic Product (GDP) measures the total value of goods produced in the economy in a given period. It is a common measure and indicates how economies are growing. Economies are more likely to have better living standards, leisure time and conditions if there is a growth in GDP.
ReplyDeleteAlthough a growth in GDP may seem positive, it is important to look at the type of GDP before gathering any conclusions. There are two main types of GDP, one of which can be misleading. Nominal GDP doesn't take inflation into account and as prices increase we will actually need to pay more because of inflation, which is not good. Real GDP takes inflation into account, and discounts price changes that might distort figures. A rise in real GDP means economic growth.
Someone's standard of living refers to the level of material comfort they are able to enjoy in terms of goods and services that they can buy and use. GDP is therefore a good measure for the standard of living.
GDP is important, if it rises it means incomes will rise, the standard of living will increase and governments can increase taxes to meet objectives. This is one of the reasons why economic growth is so important to governments, and is why GDP is carefully taken into account to measure changes in economic growth.
There are various ways of measuring GDP.
The Output Method involves adding together the output produced by various industries in the economy. It is important to not double count when measuring GDP with the output method, statisticians only count the value of each industry.
The Expenditure Method involves adding together the final spending on outputs produced by a country. These outputs are consumer, investment and government spending, as well as net exports.
The Income Method involves adding together the incomes earned from producing all the goods that year. Only incomes for producing outputs are included, not transfer payments.
Although most of the results obtained from measuring GDP are accurate, there are also many problems and flaws that arise when it comes to measuring GDP. First of all, lots of money around the world is earned but not declared, so doesn't count when measuring GDP. Also, GDP doesn't take into account who benefits from growth, a rise in GDP per head may not mean a rise in the standard of living for everyone. Furthermore, GDP only measures the value of goods produced, and may not take into account any harmful effects on the environment as a result of all the production of these goods. In addition, GDP can become distorted when comparing one country's to another, as GDP is calculated within a country using its currency. Finally, a high standard of living doesn't necessarily mean everyone is happier.
ReplyDeleteAs a result of all these problems, newer methods and economic indicators have been developed to measure quality of life, such as the Human Development Index (HDI).
The HDI has a more broader way of measuring the quality of life. It has 3 main elements. Achievement in these 3 areas is measured by how far the country has gone in attaining certain goals.
The Standard of Living, such as GDP per head. To have fully achieved this goal it is necessary to have Real GDP per head of $40,000.
Life expectancy, how long a person is expected to live. Full achievement in this goal is to have life expectancy of 85 years.
Education. To have fully achieved this adult literacy and enrollments of 100% are required.
Norway ranks number 1 on the HDI, followed by Australia, the Netherlands and the USA. Spain is ranked 23 and the UK number 28.
Even though this system way seem flawless, it too has its problems. Much like GDP, HDI fails to take the impact of economic growth on the environment into account, and is also criticized for concentrating on a too narrow range of indicators, such as education. This is Scandinavia's strong point, and is considered unfair by many other countries, as they invest most of their money in education. It is often asked how "Scandinavian" your country is.
India has adapted its own version of the HDI, and has included such things as infant mortality.
In conclusion, a growth in GDP is very important to the government because it means that there is economic growth, which in turn has very positive results for the country, such as rising incomes, an increase in the standard of living and the fact that the government can increase taxes to use money to meet objectives. GDP is a good way of measuring economic growth, but has its flaws, which is why the HDI was developed to properly measure the standard of living. Even this has a few flaws, and many countries have adapted it to better suit their conditions.
Mr Wickham I also had to separate my answer because it was too long to publish in one go.
ReplyDelete- Sam
Mister are you only going to do up to human poverty index during the next two weeks? or have you done this just this week?
ReplyDeleteMr.Wickham, I was just closing the computer tonight and decided to check the economics blogspot. I looked through the 16 comments to find that my comment written on the 30th of october at 6:15 pm has not come across/posted. I have had this problem once before, i did not save any copies as i typed it on the comment box (not on word). I shall explain this again to you in lesson time, i am very sorry it did not come through.
ReplyDeleteAltaïr
Mr.Wickham, I was just closing the computer tonight and decided to check the economics blogspot. I looked through the 16 comments to find that my comment written on the 30th of october at 6:15 pm has not come across/posted. I have had this problem once before, i did not save any copies as i typed it on the comment box (not on word). I shall explain this again to you in lesson time, i am very sorry it did not come through.
ReplyDeleteAltaïr
The economic growth is also known as the Gross Domestic Product. (GDP)
ReplyDeleteThe gross domestic product is the measure of the total value of goods and services produced in an economy in a particular period (such as a year or quarterly). It is the most common measure of national income and indicates how the economy is growing.
There are several ways of measuring GDP; The Output Method, The Expenditure Method and The Income Method.
The Output Method. This involves adding up the output produced by the various industries in the economy.
For example: in Nigeria the Output is as follows:
Agricultural output makes up about 40% of GDP.
Service sector makes up about 30% of GDP.
Oil industry makes up 20% of GDP.
Manufacturing makes up 5% of GDP.
However, it is important not to double-count outputs. For example, oil output is used for manufacturing. To avoid this problem, statiscians only count the value added by each industry (and not inputs that have already been counted).
Expenditure Method. Measured by adding together the final spending on outputs produced by a country. These are: consumer spending, investment spending and government spending and net exports.
Income method. This involves adding together the incomes earned from producing all the goods that year. Only incomes for producing outputs are included, transfer payments such as pensions and unemployment benefit are not included.
An international monetary fund (FMI) paper titled comprehensive measure of GDP on the unrecorded economy has defined hidden economic activities as ¨legal production deliberately concealed from the public authorities to avoid payments of taxes¨.
It might not be easy to measure GDP if some economic activity is hidden from the authorities. Many countries have substantial underground or unrecorded economic activity.
Someone’s standard of living refers to the level of material comfort that they are able to enjoy in terms of good and service that they can buy or use.
GDP measures the total value of goods and services produced in an economy in a given time period. It was widely believed that GDP is therefore a good measure of the standard of living. A good economic indicator. As GDP per head grows so does the living standards between countries. BUT GDP IS NOT WITHOUT ITS CRITICISMS AS AN ECONOMIC INDICATOR.
Since the 1970s there has been a lot of criticism of linking GDP with standards of living.
Firstly, inequality in society: it does not take into account that may have benefited from any economic growth. For example, the Brazilian economy (GDP) grew rapidly in the first decade of the 20th century. But Brazil has amongst the highest income inequality in the world. The richest 10% receive less than 1% of the GDP.
Then, GDP simply measures the value of goods produced: it does not take into account the harmful effects of growth such as pollution or waste. A country that produces more food does not necessarily produced healthier food. Cigarettes are counted as goods even though they can serious health implications for the population (lung cancer).
Then, international comparisons: GDP is calculated within a country using its own currency. Any change of the value in its currency can change the value of its GDP when compared to another country who’s currency has not changed. Often countries will be compared using one of the main currencies of the world such as the Japanese yen or the US dollar.
Finally the quality of life: the standard of living is not the same as quality of life. Having more goods is not always the same as being better off or happier. In recent years, economists have suggested that a persons quality of life depends on a range of factors such as being healthy, being free from stress and worry or living in a pleasant climate. None of these are measured in simple GDP calculations.
Economic growth is the increase in the amount of the goods and services produced by an economy over time. Government aims include steady growth in production in goods and services, high level of employment, rise in wages, general prices rising slowly and not too many inequalities between incomes.
ReplyDeleteAll of these aims are possible with economic growth. This is the reason why governments are so interested and is so important to them. Over time, economies need to be able to provide better living standards, so that people have more goods to consume, more leisure time and better environmental/living conditions. These things are all equal to a growth in the GDP.
GDP measure the total value of goods produced in the economy in a given period of time (usually every 3 months) to a year, it is also calculated per head. Sometimes, GDP can be misleading and can indicate wrongly just how the country as a whole is getting on. Gross Domestic Products can be measured in two ways, with Nominal GDP or Real GDP. Nominal GDP is the increase in prices due to the value of National output, but will also cause people to be worse off as they now have to pay for their own products, which means their purchasing powers, have increased. On the other hand, Real GDP is the actual amount of output increased (unlike in Nominal GDP where the Price of output is included) will people benefit from an increase in GDP. So usually if there is an increase in output; there is an increase in Real GDP.
Rising GDP is usually an indicator that incomes in the country is rising, the standard of living has risen, and that the Government is able to raise taxes and to use the money to meet mischellaneous objectives in the economy, such as public goods/services. All of these are things the Governments aim to achieve, as it is beneficial for the people, and the Gov itself.
Sometimes, GDP may be misleading, as it does not explain how income might be distributed between different groups in society. When measuring GDP, the government must take into consideration inflation, which if it rises, may lead to distort increases in GDP. The standard of living is the same qualities of life. Having more goods does not make the population happier or better off. It can also be misleading when calculating people’s standard of living. People’s standard of living usually refers to the level of material comfort that they are able to enjoy in terms of goods and services, which they can buy, or use. GDP may also not take into account who is benefitted from the economic growth. For example people in Brazil, their riches are a 50% GDP goes to the rich; receive 10%, so 1% of GDP in Brazil. Rising GDP per head does not mean a equal rise in standard of living for everyone. GDP also only measure the values of goods produced, and not take into account the harmful effects of growth [waste etc.]
GDP is also calculated within a country using its own currency, so if there is any change in value in its currency, GDP will alter, and compared to other country whose currency has not changed, may seem low. Although countries economies’ are usually measured in Yen or American Dollars.
So, in conclusion, economic growth is very important for a country because it means steady growth in production in goods and services, high level of employment, rise in wages, general prices rising slowly and not too many inequalities between incomes. These are usually measured in GDP, which is an excellent measure; but has flaws as its ability to measure inequalities in society, value of goods produces, international comparisons and quality of life.
☺
Well done everyone. You have all written good answers here. A few were a bit short and some didnt explain the problems/ alternative measures very well.
ReplyDeleteOverall, some very good answers here.
Emeline: C+
Why is GDP important? More detail please and alternative measures?
Sara: A
Excellent
Felipe: A
Excellent, careful of definitions in your intro.
Sanzhar: A
Excellent
Sam: A
Excellent
Ibon: B
Good answer but no mention of alternative measures.
Altair: B
Good answer but no mention of alternative measures.
Sorry Marcos!
ReplyDeleteMarcos: B+
Excellent answer. Need to mention alternatives to GDP to get the higher grade. Well written answer.
well done everybody! mister if we all get Bs or higher can we have a chocolate? :)
ReplyDelete