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GDP is one of the most universally recognized terms in economics. Even outside people with an interest in the subject most adults would be able to tell you that GDP is a measure of how large an economy is.

They might not be able to tell you how it’s calculated or even what it stands for but they would get at least that part right.

And you know what, that’s probably all they need to know, it might be all economists need to know about the figure, because it might be the extent of what this figure can tell us.

Gross Domestic Product is a measurement of production in an economy, the idea is that the more stuff that is being created and transacted the wealthier the economy is and while this isn’t necessarily wrong it’s not the whole story.

The tachometer is a measurement of your car’s performance. Higher revs on the dial, normally mean your car is going faster, but there is actually no way to know without other information, like if that car is in gear or even if that car has wheels on.

This might be a bit of a rough analogy but in a world where people are becoming hyper-focused on GDP figures and what they mean for everybody amidst the chaos of 2020, it’s important to remember to check the other indicators.

Something to keep in mind amongst all of this is that GDP is a macro-economic measure, it looks at the whole economy as an aggregate or a total collective.

Sure the figures might not look great, but ask yourselves watching, did your lifestyle become 33% worse when a 33% drop in GDP was recorded?

For most of you watching I would imagine the answer is no, which might start to raise some eyebrows as to just how useful this measure is at telling economists what’s really going on in the nations they are studying.

So …

What are the limitations of GDP?

Are there better figures to look at to get an idea of how prosperous an economy is?

And how could focus on something outside of pure productive capacity be good for our economy?

#Economics #GDP #NetWorth

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