GDP
Economists use GDP to determine whether a countries economy is growing or deteriorating. This method used by economist measures the total output. The total value off all the final products and services offered in a certain period is corrected to eliminate price changes. GDP is, therefore, an essential part of the economy as it is used by many people to make decisions. The GDP tells investors where and when to make investments. Thus, a vital tool in investment decision making. There are shortcomings in the GDP more so in the developing countries. Environmental laws are of fewer concerns when it comes to these countries. The majority of the developing countries are in the move of manufacturing and industrialization, trying to develop their economy. The business cycle and variables that affect it are discussed in this paper. A period is evaluated and considered using GDP. Factors that affect the cycle are examined, looking at their effects. The health of citizens has a connection between GDP, business cycles, and economic growth. The gross domestic product depends on the health of citizens and the business cycle for economic growth.
GDP is significant as it is used to measure the output of an economy. Through the GDP, the country can know how much goods and services it has produced. This is important for tracking their production capacity. This track record is essential for future reference. Gross Domestic Product is also crucial as it indicates the size of an economy. The higher the GDP, the bigger the economy, and vice is true. Comparisons can also be made between two consecutive GDPS to determine the trend of the economy. When the current year’s GDP is higher than the previous, then the economy of a country is said to have grown.
Investment decisions by countries are made based on the Gross Domestic Product. Investors who wish to invest in a particular country search for the GDP of that country before making any investment decision. It is carefully assessed before any determination can be made. If the growth in GDP is significant, the investor makes his move to invest. Countries that want to trade with each other also compare each other’s GDPS before they can embark on trading. Additionally, states analyze each other’s Gross domestic products to determine which country dominates in a particular market. It can be seen that GDP plays a crucial role not only in decision making but also in the world of business.
The business cycle is evaluated using GDP. Such a cycle involves recession, recovery, growth, and decline. Both GDP and business cycles depend on each other as one cannot exist without the other. It is through the period that one can get a high or low GDP. High or favorable GDP means that the variables in the cycle were conducive. Low GDP implies that there was high unemployment, fewer profits, and small household incomes within the sequence. A period like depression indicates low GDP, while expansion suggests a high GDP. These cycles do not occur on their own but are affected by factors that are included in calculations of Gross Domestic Product.
A business cycle is termed as a sequence of an economy, which causes it to rise and fall. It is characterized by growth and decline. One of the indicators of an economic downturn is lower household income, fewer profits, and high unemployment. Economic recovery is the opposite of economic growth. The transition between the two characteristics is not a smooth one. Patterns have been studied and formed to predict future occurrences. There are various types of business cycles, which are expansion, peak, contraction, and depression. These factors are affected by factors such as employment, inflation, productivity, taxes, and interest rates. Each element has its way of causing a drift on the cycle.
At times where the unemployment rate is high, industries do not work correctly, other outputs may be minimal, which makes the economy to decline. Inflation is a variable that affects the business cycle negatively. It occurs where prices of goods and services rice above the expected margins. This rise in prices lowers the ability of customers to purchase the products. The weakening of purchasing power results in economic decline. High inflation rates affect the business cycle negatively, while low inflation affects it positively. Labor productivity is another factor that affects the period. Productivity is determined through the Gross Domestic Product of a country. When inflation is low, companies tend to produce more goods and services. Governments are known to decrease or increase taxes to control the business cycle. Change of one of these factors leads to a change in the business cycle.
There are various shortcomings or limitations of GDP in measuring a countries economic health.Some of these setbacksare the trade of illegal goods. Illegal products and services such as prostitution are being traded through barter transactions and are not included in the GDP. An increase in these unlawful trade leads to an effect on the health of those who consume the goods and the services. Diseases such as cancer and STI’s are on the rise due to increase in these illegal acts. Since it is impossible to put this trade into account, the GDP of a country remains to be a mere estimation. Environmental abuse is shared in a country that is engaged in industrialization. This environmental abuse is more prevalent in developing countries. A lot of poisonous emissions into the atmosphere lead to cardiovascular disease and cancer. Developing countries do not put more concern on environmental laws. These countries are more concerned with growing the economy than on environmental regulations. The GDP of the U.S has been declining due to the health of workers. Its business cycle is low as a result of the decline in the GDP. The economy of the U.S has shown a significant drop in terms of growth.
In conclusion, the GDP of any country is a vital element as it plays a crucial role in decision making. Many countries rely on this product to make investments, as well as investors. However, various shortcomings can be a limitation on the Gross Domestic Product. Such restrictions are more involved in the health of individuals who work to see the success of a favorable GDP. Environmental degradation and illegal acts that cause a threat to the health of consumers pose a big challenge. The effect produced by pollution and illicit acts ought to be deducted in the final GDP to determine the true one. Various factors have been known to cause a drastic change in the business cycle. These factors affect not only the sequence but also the GDP.
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