GDP is an acronym for Gross Domestic Product (GDP). The Gross Domestic Product (GDP) is the total money and market value of goods that are created, produced and sold in a total year. The Gross Domestic Product (GDP) comes with many negative and positive aspects. The main goal is to evaluate the total level of output in the economy as well as the well being of the entire population involved. “Money isn’t everything. But for measuring national success, it has long been pretty much the only thing. The specific metric that has prevailed since World War II is the dollar value of a country’s economic output, expressed first as gross national product, later as Gross Domestic Product (GDP). The era of GNP and GDP has been characterized by a huge global rise in living standards and in wealth.” (Harvard Business Review) GDP is broken down into two measures, the income measure and the expenditure measure. The income measure approaches the Gross Domestic Product (GDP) by equating the nation’s output as a whole by the amount of money that the people involved in the populations make, such as employee compensation, interest received and interest paid, rent income and royalties. Business payments for the course of a year are included in the measure. The business payments are an income approach because when a business makes a payment, the payment is typically income to the recipients of said payments. The expenditure method approaches Gross Domestic Product (GDP) as an output accounting method. The goal of the expenditure method is to find the nation’s total output by adding up the total of money that a population spent throughout the entire full year. The expenditure method is broken down into a formula GDP= C + I + G + (X-M). There are also two types of GDP, nominal GDP and real GDP. Nominal GDP is defined as the yearly output of services and goods, and their totaled prices for the year. The nominal GDP is known to provide a perfect measure of the yearly economic performance. The real GDP is a useful alternative to nominal GDP in which it discovers what is wrong with the nominal GDP. The real GDP measures the amount of output that was made during the current year and the prices that came from they ear before. This enables us to be able to measure the output of several years. The Gross Domestic Product (GDP) comes with many particular strengths. Since the Gross Domestic Product (GDP) is the most used source of economic measurement, one has to agree that the Gross Domestic Product must be doing something right. If the Gross Domestic Product (GDP) was doing as poor of a job as most say, then we would not be using it so much and we would come up with a “better” solution and actually stick with it, but so far that has not happened and we continue to use the Gross Domestic Product (GDP) to deal with most of economic situations. The Gross Domestic Product (GDP) is also used throughout the world in many different nations, so it is heavily relied upon. “A decomposed GDP can highlight comparative strengths and weaknesses of various sectors. Tracking this number can thus give policy-makers and analysts an easy-to-use tool that helps steer economic policy. The GDP is also an accurate barometer of the business climate. Technically, a recession may be simply two consecutive quarters of negative GDP growth, but to business and government it is a signal to adjust their policies.” (Haggart) The Gross Domestic Product (GDP) allows us to compare both the high and low points of the various businesses and incomes that we produce over the course of a year. By having the GDP, economists have an easy way to not only form an economic policy for the population to abide by, but this also enables them to steer the policy in the right and most positive direction possible. As Haggart says, the GDP is the tool that we use to measure the economic climate for the year, and even though a recession stems from two quarters of bad GDP growth, the GDP is a tool that economists can use to measure against so that they never make the same mistakes twice. The Gross Domestic Product (GDP) is also a strong force and a good thing because it provides an example of what the correct levels have to be for economic and social welfare. “If we are interested in tracking changes in welfare, the GDP could serve as an adequate measure of changes in social welfare if other factors influencing welfare remain constant. Some economists argue that changes in the GDP, in fact, do mirror overall welfare close enough to make it a good measure of changes in welfare. Perhaps the best argument for using GDP as a proxy for overall welfare is that it is easily quantifiable. To the extent that GDP approximates overall economic and social welfare, having a one-number bottom line that is easy to calculate and track is an enormous benefit to policy-makers.” (Haggart) However, in defense of the GDP, it gives the most broad sense of information when it comes to economic output and economic growth. Also, Real GDP considers inflation and makes comparisons between the rate of GDP now compared to long ago. Although the Gross Domestic Product (GDP) has a lot of positive attributes, the weaknesses of the GDP cannot be undermined, and must be taken seriously. However, what I find to be the most confusing is that if economists and people who depend on the Gross Domestic Product (GDP) for their economic needs are highly not in favor of the Gross Domestic Product (GDP), why does it still continue to be used world wide? First off, the Gross Domestic Product (GDP) does not include non-market activities which take up a pretty large part of the economy. Non market activities usually consist of volunteer work and trade. Even though non-market activities do not necessarily make any money, to exclude them from the GDP basically does not tell the full truth. In order for the economy to be entirely well rounded, everything, in my opinion has to be included. We are not being told the full truth, so in an essence a lot is being kept from us and that is not a good thing for the economy. Also, the economic welfare is not always being contributed to by the measured GDP expenditures. Sometimes if one looks at the increases and decreases in the Gross Domestic Product (GDP), it does not show a perfectly accurate depiction. “In some cases, looking at rises and falls in GDP does not provide an accurate, or complete, picture of overall welfare. If one were to use GDP alone as a normative indicator, then externalities, i.e., outside events over which we have no control – such as war, natural disasters and disease, and which lead to increased spending would be considered to be unambiguously positive inasmuch they increase economic activity. However, the GDP does not account for any welfare loss that results from an event such as a natural disaster or a toxic-waste spill, even though an environmental cleanup or reconstruction effort contributes both to welfare and the GDP. Relying solely on GDP as a normative indicator under such conditions will result in a “mis-measurement” of changes to social welfare because it does not take into account the negative events that triggered the economic activity: “Though ‘natural’ and ‘man-made’ disasters, crime and accidents all contribute to GDP in a positive way since these activities generate production” (Haggart) Also, GDP has the tendency to ignore distributing both income and consumption. Many minorities and different groups well being is an important indicator of social well being in our economy. The GDP per capita is what shows us a rough estimate of each individual “group” share in the economy. However, every group is different. “This level and changes in inequality in the distribution of incomes and consumption, and the incidence of poverty, cannot be determined by tracking the GDP.” (Haggart) Another very strong weakness of the GDP is that the data is not released in a timely, constant matter for consumers to keep up. It is only released on a quarterly schedule. “Revisions can change historical figures measurably. The difference between 3% and 3.5% GDP growth is a big one in terms of monetary policy.” (Barnes) With both of it’s negative and positive attributes, economists and the people have come up with alternative measures on how to approach the Gross Domestic Product (GDP). “As everyone in business knows, you manage what you measure. So although the replacing-GDP discussion may seem a little airy, its growing credibility in important circles could give it a real impact on economic policy. And it parallels efforts in some boardrooms to use new metrics to measure overall success. So it’s worth exploring where the movement is coming from and where it might be headed. “ (Harvard Business Review) The Index of Sustainable Economic Welfare is an alternative that was created by the Organization for Economic Cooperation and Development. The alternative deals with income distribution and factors in important non-marketable factors that the Gross Domestic Product (GDP) typically does not, such as pollution. This alternative attempts to “supplement or supplant traditional income-based measures with happiness-based measures. These include the Happy Planet Index, a Gross National Happiness measure and work on National Well-Being Accounts.” (Rampell, NY Times) Another alternative has been created by China where they had attempted to launch their measure called Green GDP which is compromised up of what sort of economic growth is a factor in the consequences of the environment. The United States Congress also played a large roll in the green accounting. Another important substitute for Gross Domestic Product (GDP) is the Net Domestic Product. The Net Domestic Product is found by subtracting the depreciation from GDP. It measures the national production above what is needed to replace worn out capital. “This measure allows users of the country's national accounts to estimate how much the country has to spend just to maintain their current GDP. If the country is not able to replace the capital stock lost through depreciation, then GDP will fall. In addition, a growing gap between GDP and Net Domestic Product indicates increasing obsolescence of capital goods, while a narrowing gap would mean that the conditions of capital stock in the country is improving.” (Investor Words) The Net Domestic Product is a solid substitution for the GDP because it includes non market items, which the GDP does not. Another good substitute for the GDP is national income. (OECD Observer) The National Income is measured by output, spending and income. The national income measures how much money output goods and services that were made an economy over a span of time makes. The National Income also measures the rate of growth and level of the economy during that particular time span. When economists are dealing with the National Income, they have to consider the economic growth rate, the change of income distribution between different groups throughout society and how the average members of the population calculate their standard of living. Out of all of the alternative measures of GDP that I have discovered throughout my research, the best alternative that caught my interest was the Green GDP. . The purpose of the Green GDP is to contain an economic growth index that factors in environmental growth, loss of biodiversity and the reasons for climate change. These are non-market goods. The Gross Domestic Product (GDP) generally does not factor in non-market goods, but the Green GDP is taking the environment into the equation and maximizing on the importance of not only keeping the environment clean, but the effect that it will have on our economy to have the environment taking care of. Everything is economic, even if it is indirect. By launching the Green GDP into effect, all ends of the spectrum will generally be healthier. I do not necessarily agree with the fact that the Gross Domestic Product (GDP) only considers goods that will actually make money. The environment is an incredibly huge factor in making money even if it is not directly. I thought that it was particularly interesting that this was taken into account. In conclusion, the Gross Domestic Product (GDP) is an incredibly controversial item in our economy. It is hard for one to determine whether or not the Gross Domestic Product (GDP) is actually enough for the people. The Gross Domestic Product (GDP), while it contains a lot of flaws, is also highly utilized and incredibly popular so it is hard for one to really decide if whether or not it should be replaced, and how exactly it will be replaced. There are many alternatives to the Gross Domestic Product (GDP) that seem incredibly productive and useful however most tend to just fall short. The Gross Domestic Product (GDP) might be more effective and useful if it took non-marketable goods into account, and did not just focus entirely on only items that make money directly. What I find to be the most interesting and useful part of the Gross Domestic Product (GDP) is that it basically serves as a model for our economy as a whole. Everybody relies on the Gross Domestic Product (GDP) to measure against, and to see if they made a good outcome for the previous year. The fact that one can compare a year against another to see if progress has been made is incredibly important. It is an awesome indicator of whether or not a country is doing well. After two years of bad Gross Domestic Product (GDP) a country can find themselves in a recession. By being able to use the Gross Domestic Product (GDP) as a tool to get themselves out of it by learning what they did wrong prior, by looking at previous years. Another aspect of the Gross Domestic Product (GDP) that particularly interested me, is the fact that all countries and nations around the world rely on the same Gross Domestic Product (GDP) system in order to measure their level of output and consumption. The Gross Domestic Product (GDP) has it’s own way of uniting the world as a whole, regardless of other differences that may come up between not only neighboring nations but those all the way across the world from one another. When the world comes up with a replacement of Gross Domestic Product (GDP), I am looking forward to seeing how it will connect the world together as the Gross Domestic Product (GDP) has done before it.
