Business Economics: The Gross Domestic Product Essay

Question:

Describe about the Business Economics for The Gross Domestic Product.

Answer:

1: GDP or the Gross Domestic Product is the total dollar value of the final goods and services produced within the economy. GDP is one of the primary indicators that are used to measure the growth of the economy and the economic wellbeing. Measuring the GDP of an economy is a complicated process, as it gets difficult to sum up correctly all the goods and services sold in the economy. GDP has been considered as one of the tool for measuring the economic growth since the period of Great Depression, when the government of the economy intended to boost up the industrial production.

Economic growth refers to the rate at which the GDP grows. However, growth and development are two different concepts. An economy is said to experience growth when the number of transactions and the value increases. The GDP of the economy is a measure that is adequate to measure the growth of the industries in an economy that produces complete goods and products. As per the concept of GDP, every growth taking place in the economy is a good growth. GDP includes the negative externalities in the calculation even though it is harmful for the society. GDP cannot be considered as an appropriate macroeconomic indicator since GDP does not consider the sustainability of future GDP. The value of the non-monetized activities is also not added in the GDP of the economy. The value of the more or less productive economic activity cannot be differentiated using GDP of the economy. In the scenario, where the business makes loss due to natural calamity, the GDP fails to take into consideration the loss of the goods and the services. Rather in such a condition, the income generated from the raw material extraction will be included in the GDP.

Furthermore, the GDP is silent about the income inequality, unemployment, civil rights, environmental qualities or the other factors that accounts to the measuring of the wellbeing of the economy or the standard of living of the people. However, in a number of economies such as South Korea or Uganda, the GDP is a macroeconomic indicator as it carries a lot of information.

2: As per the U.N. data, Greece is one of the most high-profile struggling economies all very the globe that has faced a recession period of 63 consecutive months from the third quarter of 2008 to the second quarter of 2014. During the recession period, the youth employment rate was below 50% and the gross government debt had increased more than 160% of the total GDP.

The root cause that resulted in the recession of Greece was the debt. The debt that occurred was not from the government side but rather from the private household and corporation of Greece (Auerbach and Gorodnichenko 2012). Greece had a high rate of inflation and interest rate that caused the average borrowing cost to increase by 20%. There was a significant deterioration in the trade situation of Greece due to the debt-financed imports. During the recession, the non-performing bank loans increased from 4.7% in 2008 to 34% in 2014, which was a percent of total loans in the economy ('The Bank Of Greece' Bankofgreece.gr, 2016). The business had cut down the spending on the domestic goods and services while the private sector struggled hard to clear the debts.

The recession period had significantly affected the economy of Greece that made the economic condition pathetic. The selling of goods and the services becomes difficult as the purchasing power of the individuals in the economy falls drastically (Katz 2014). The investment is at stake as the stock prices reduces that affects the industrial production. The recession period in Greece was accompanied by increased unemployment. The individuals were thus unable to meet both ends and many goods and services were not within their reach. As the recession persisted for a long toe, there was creation of depression within the economy of Greece. In the stock market, negative trends were observed along with rapid unemployment (Giuliano and Spilimbergo 2014). The increase in the national debt infers that less money is available to the government that can be spent on the economic development.

3: Free trade can be termed as an economic practice, where the countries are able to trade with each other without the intervention of the government. Free trade provides many benefits to the developing nations, as there is no involvement of tariffs, obligations or limitations in the trade. South Africa is one of the developing countries with a low level of economic resources and low standard of living. The strategic free trade agreements help South Africa to increase their economic condition up to a great extent. The free trade helps the economy of South Africa to increase the amount or the availability of the economic resources. The economic resources include land, labour and capital. Free trade help the economy to achieve the adequate resources requires to produce the goods and services in order to meet the demand of the market.

Free trade ensures South Africa to enhance the quality of the life of the people as the country is able to import the goods that are not produced in the home country. This helps the economies of South Africa to ensure constant flow of goods from the neighbouring countries. The free trade supports the economy to achieve better foreign relations. Nevertheless, as the developing nations face international threat, the free trade reduces the threat by establishing healthy relation. In addition to this, the free trade helps South Africa to improve the efficiency level in the production. The process of free trade can effectively fill up the gap in the production process in the country. Thus, practicing free trade with other nation will help South Africa to increase their economic condition, as the revenue earned is also higher. In free trade, the export generates higher profit since there are no tariffs included. The economy experiences higher employment rate because of increased economic activities. Thus, the economy of the country is automatically boosted. South Africa is further able to access the new markets and sell the products in the foreign markets. An inflow of the foreign capital accelerated the activities in the banking system tht increases the investment and the consumer lending.

References

Auerbach, A.J. and Gorodnichenko, Y., 2012. Fiscal multipliers in recession and expansion. In Fiscal Policy after the Financial crisis (pp. 63-98). University of Chicago press.

Giuliano, P. and Spilimbergo, A., 2014. Growing up in a Recession. The Review of Economic Studies, 81(2), pp.787-817.

Katz, L., 2014. Long-term unemployment in the Great Recession. Members-only Library.

'The Bank Of Greece' (Bankofgreece.gr, 2016) < accessed 20 October 2016

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