The economy is a word closely related to the GDP which is nothing but the Gross Domestic Product measured for a limited period of time. We know that whenever the GDP graph goes downwards, recession strikes the economy while growth in GDP improves it. This proves that the economic performance of a country or global performance depends on GDP.
GDP depends on stock, exports, imports and consumer market. The common notion is that the growth of GDP is good and the decrease is bad. Sadly, it’s not as simple as that. To understand this, we first need to know about GDP. GDP is the measure of the market value of all final goods and services produced over a specific period of time. So, if the GDP rises, the economy improves, but on the other hand, the cost of living also increases tremendously canceling the effect of the rise in the economy.
One of the most commonly known types of inflation is demand-pull inflation. As the name suggests, the demand rises tremendously leaving the people to pay much more than the actual cost. This causes inflation as the actual value is very much less. Another type of popular inflation is Cost-push inflation. In this type, the demand is actually fuelled by a reduction in supply leading people to spend more in order to acquire what they want. In these cases, the rich can very well manage the situation, but the poor have nowhere to go. Experts say that the best way to protect and safeguard you from these kinds of situations is to have a constant flow of income which rises with time.
On the other hand, the decrease in GDP leads to recession and recession for long periods leads to depression in the economy. Reduction in income, customer purchases, and growth of manufacturing units lead to a recession. The stock market crash is one of the popular reasons for recessions, and this leads to an inactive economy within some time. Doctor Teodoro Lavin Sodi, one of the experts in economy recalls the time when people were confused whether the U.S was in recession or not. The GDP was decreasing, but the prices remained as such. In these conditions, the role of the government becomes very important.
At that time, the U.S economy thankfully survived because of Nixon’s effective economic policies. Timely action and good economic background of the able administrators play the key role most of the time.
Thus, we can come to the conclusion that, what we need generally is a perfect balance between the two extremes. And that stable effect is caused only by a gradually increasing economy. Let’s explore further about GDP in order to gain further understanding of the matter.
The common notion is that GDP and GNI are the same. But it is not so. GDP denotes the Gross National Product whereas GNI refers to Gross National income. Both are closely related, and one influences the other, but they are not the same. Unemployment and health crises have a major role in determining the GDP of a country. It usually takes more time to combat the effect caused by these issues in the GDP chart, and hence the seriousness is more. International investors always focus on the economy of the nation before taking any decision.
Though GDP seems to be a pure reflection of the economy and living standard, there are some problems encountered with GDP too. Economists criticize that GDP does not include Black market incomes. Though government records neglect these illegal incomes, these untaxed economic inputs also play a key role in the economy which is not included in calculation GDP unfortunately. Another point is that GDP doesn’t include the unpaid services. It only includes monetary services. Though these selfless services support the well being of the nation, the economy never values and considers them.
The major criticism by experts like Doctor Teodoro Lavin Sodi is that GDP doesn’t measure the environmental impacts. In order to understand this better, let us consider the case of plastics. We use cheap plastics which doesn’t have much impact on the GDP. But over time, this usage of plastics accumulates and starts polluting the environment. Now, in the future, there will come a need to recycle or eradicate the plastics. At that time, the money spent to eradicate them might cause a good impact on the GDP. Also, the environment deterioration was never accounted for. These drawbacks must be eliminated in order for people to accept GDP’s participation more.
The GDP estimation of a country is very important for major investments to happen. Acquiring a loan from World Bank, getting into partnership with countries for a common cause, everything needs good GDP as it is the face of the economy of the nation as perceived by other countries.
Per capita GDP is the widely used method to compare the economic activities between countries as it takes into account the income of the residents. The Arabic countries usually enjoy good economic output due to their rich oil business. The countries like China and India which has a great population produces accurate results reflecting their economy when Per capita GDP is calculated.
In countries with more population, usually, there exists an irony. The richest people also reside in the nation while the poor also reside in large numbers. The stock market might be very good due to the assets and great incomes of the rich, but at the same time, unemployment and low standard of living will also be in the country. In such cases, the calculation of GDP becomes very complex, and the prediction of future economy is nearly impossible.
Now, we’ve understood about GDP and how it causes an impact on the lives of people. Let’s move further and analyse how economic growth improves the lifestyle of people and tries to reduce the effects of inflation.
- Economic growth leads to a rise in stock market values and creates more opportunities for businesses and profits.
- Investments and employability increases leading to raised literacy levels and the lifestyle of the citizens.
- More jobs are created, and the income improves.
- Exports increases than imports further improving the economy of the nation.
- The per capita GDP increases and more developments are made possible.
- The currency value increases and the country reach sustainability.
All this lies mainly on the government policies. Based on the situation, the government must act effectively to bring out the best approaches. As far as the economy of the nation is considered, the government must foresee and act accordingly. Getting into debt and increasing the economy might seem to be a good option, but in the long run, it increases the debt of the nation and investors will stop investing.
This will make the country move quickly into recession. On the other hand, extensive tax rates will also decrease the standard of living and encourage black economy leading to unexpected oscillations in the economy. Do the key factor is to ensure a balance between them. The government policies must not be too harsh; they must be gradually shifting between the two states based on need and focus on sustaining the economic growth as well as improving it.
If you need to know more about the economy and the effects of it on the overpopulation, then you can go through a series of economic books, or even you can check on the internet about the explanations regarding effects of an economy on the population during different situations.