Question

How does gross domestic product (GDP) represent the health of an economy? List two ways that a GDP is representative of the overall strength or weaknesses of an economy.

Answer 1

Answer

Hi,

1. Gross Domestic Product (GDP) represents the health of an economy by measuring the total income of the economy and total expenditure of the economy on goods and services. When the GDP is strong, workers in the country are hired more and the companies can afford to pay the needed wages resulting to more spending by customers. More firms will invest in various business operations when the GDP is strong. Higher the investments will mean a growing economy in future.
2. GPD represents an overall strength/weakness of an economy in the following ways;

• A strong GDP represents strength of an economy because companies will employ more workers and pay better salaries and wages. This will mean that people will have more to spend for goods and services enabling the government to get taxes.

• A weak GDP represents a weakness in the economy in that firms will lose the confidence to invest more because the economy will be proceeding to recession. Employees might face retrenchment and wages/salaries may be lower than expected.

Best Wishes!