Understanding GDP: A Tool for Economic Stability

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The main purpose of the government’s existence is to provide economic stability for the country to determine future economic prospects. One’s nation should have a stable economic to show prosperity in business, thorough and maintainable finances and good cohesion. Studies have shown that many developing countries such as Singapore are experiencing inflation problems which is affecting economic growth. As economic growth is measured by the variations of Gross Domestic Product (GDP), it is essential to understand the causes of inflation and unemployment to further understand the variations such as recession and expansion. Several methodology such as the Aggregate Supply (AS) and Aggregate Demand (AD) model and Phillips Curve approach affects Gross Domestic Product (GDP) is an Economic Barometer which has being widely used around global to determine whether the country’s economy is under recession or expanding. It is a great tool for the government in aiding on making critical economy decision whether to input more money or remain in constant. It is also expressed into two different functional terms, Real Gross Domestic Product (GDP) and Nominal Gross Domestic Product (GDP). When inflation occurs or price levels changes, Real Gross Domestic Product (GDP) is adjusted. While Nominal Gross Domestic Product (GDP) does not. The average prices of the goods and services in the Gross Domestic Product (GDP) in the current year expressed in percentage of the based-year prices is called the Gross Domestic Product (GDP) Deflator, measured the price level. To analyse the impact of price variations in an economy, the Gross Domestic Product (GDP) Deflator would be the ideal price index as it reflect changes in consumption configurations and the outline of new goods and services. When real Gross Domestic Product (GDP) increases or fluctuates in a given period, it shows either the economic growth rate is expanding or contracting as the real Gross Domestic Product (GDP) is being used to calculate the economic growth

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