Answer:
Explanation:
Economists and statisticians use several methods to track economic growth. The most well-known and frequently tracked is the gross domestic product (GDP). Over time, however, some economists have highlighted limitations and biases in the GDP calculation. Organizations such as the Bureau of Labor Statistics (BLS) and the Organization for Economic Co-operation and Development (OECD) also keep relative productivity metrics to gauge economic potential. Some suggest measuring economic growth through increases in the standard of living, although this can be tricky to quantify.
KEY TAKEAWAYS
Different methods, such as Gross National Product (GNP) and Gross Domestic Product (GDP) can be employed to assess economic growth.
Gross Domestic Product measures the value of goods and services produced by a nation.
Gross National Product measures the value of goods and services produced by a nation (GDP) and income from foreign investments.
Some economists posit that total spending is a consequence of productive output.
Although GDP is widely used, it, alone, does not indicate the health of an economy.
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Why Is GDP So Important?
Gross Domestic Product
The gross domestic product is the logical extension of measuring economic growth in terms of monetary expenditures. If a statistician wants to understand the productive output of the steel industry, for example, he needs only to track the dollar value of all of the steel that entered the market during a specific period.
Combine the outputs of all industries, measured in terms of dollars spent or invested, and you get total production. At least that was the theory. Unfortunately, the tautology that expenditures equal sold-production does not actually measure relative productivity. The productive capacity of an economy does not grow because more dollars move around, an economy becomes more productive because resources are used more efficiently. In other words, economic growth needs to somehow measure the relationship between total resource inputs and total economic outputs.
The OECD described GDP as suffering from a number of statistical problems. Its solution was to use GDP to measure aggregate expenditures, which theoretically approximates the contributions of labor and output, and to use multi-factor productivity (MFP) to show the contribution of technical and organizational innovation.
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Gross National Product
Those of a certain age may remember learning about the gross national product (GNP) as an economic indicator. Economists use GNP mainly to learn about the total income of a country's residents within a given period and how the residents use their income. GNP measures the total income accruing to the population over a specified amount of time. Unlike gross domestic product, it does not take into account income accruing to non-residents within that country’s territory; like GDP, it is only a measure of productivity, and it is not intended to be used as a measure of the welfare or happiness of a country.
The Bureau of Economic Analysis (BEA) used GNP as the primary indicator of US economic health until 1991. In 1991, the BEA began using GDP, which was already being used by the majority of other countries. The BEA cited an easier comparison of the United States with other economies as a primary reason for the change.
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