GDP is by far the most relied on macro economic indicator as compared consumer price index and unemployment index. This indicator predicts the future of the economy activity as well as describing what is happening in the present (Godfred 129). Since it is an aggregate measure of total measure of total economic production for a country, GDP represent the market value of goods and services generated by the economy during the time it is calculated, including personal expenditure, government total cost spending, private stock, total construction costs and the foreign trade balances. Trade balances are calculated by subtracting imports from exports. It is the main measure used to calculate the rate of inflation and also indicates inflation
GDP as a measure of how the economy is prevailing is a competent measure due to several reasons. First, it provides a comprehensive indication of economic growth rate. This is because it gives all data on the various sectors of performance once the aggregate GDP is disintegrated. This helps the policy makers make informed decisions that would benefit the targeted sectors more. It also enables comparison of the growth of economies of two or more countries.
Another reason showing that it does a good job is because it is easily measurable (Godfred 132). GDP growth is the key feature to the general welfare contribution to the community. This can be due to the increase in employment thus increasing income levels therefore it a measure of social welfare.
Alternative indicators also include the Index of Sustainable Economic Welfare, the Genuine Progress Indicator, Green GDPs, and Genuine Wealth. This is because these indicators are supported by the same data as GDP but indicate the true well economic state of the citizens showing that over time the economic activities maybe canceling from the welfare standpoint (Hakeem and Kamil 80). The weaknesses of such indicators are failure to value services that are mostly reported like volunteer labor or illegal activities. Secondly, a fixed forum in deciding items those are beneficial or non-important so that a decision can be made if they are to be included in the total cost. Finally, it is the forum to decide the universal way to measure the value of the deteriorating natural resources.
Despite being other proposed ways of measuring the well being of an economy, GDP is still the current indicator still in use. This is because though it has many limitations, the other proposed indicators still are not perfect as noted earlier (Godfred 132). Secondly, since GDP represents all factors in monetary form, it easy and the most convenient method. Another reason is since it was formulated many years ago, it is the most easily available method and most popular. Finally, due to its use in deriving other measures used in the economy, it would be really hard to replace it with another indicator.
In conclusion, the choice of economic indicators usually affects the economy in one way or another. This happens because research has shown that economical trends control the election winners. If the economy improves a party stays in leadership but in case f the contrary, they mostly loose. This is because most citizens view the government responsible for their economic status (Hakeem and Kamil 72). Therefore, most economies chose the indicators that favor most people in power so as to use the positive results for their own advantage.
Work Cited
Bokpin, Godfred Alufer. Macroeconomic development and capital structure decisions of
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Evidence from emerging market economies: Studies in Economics and Finance. 26.2
(2009):129 – 142
Hakeem Ishola Mobolaji, Kamil Omoteso. Corruption and economic growth in some
selected transitional economies: Social Responsibility Journal.5.1 (2009):70 - 82
