GDP, or gross domestic product, is a common measure applied to evaluate a country’s economic performance. It is the aggregate market worth of all the goods and services created in a country in a particular time interval. GDP is usually measured annually and can be calculated in several ways. One of them is simply adding all the expenditures made by businesses, households, and the government. A comprehensive computation of economic output and GDP provides a good insight into a country’s economy. Nevertheless, nominal GDP doesn’t consider inflation a critical economic indicator and therefore cannot be regarded as a universal economic measure.
Unlike nominal GDP, real GDP reflects the worth of goods and services created in a country in a specific interval, tuned for the inflation rate, and, therefore, is a more accurate tool to analyze a country’s general economic accomplishments. However, it still fails to demonstrate the actual material well-being of the citizens (OECD.org, n.d.). GDP per capita (PPP) also doesn’t show actual income distribution in the country and doesn’t reveal the level of social inequality. Hence, high real and nominal GDP doesn’t imply a healthy economy, as gross misdistribution of wealth represents a serious problem for the economy’s efficiency.
Neither nominal GDP nor real GDP can be used as the only variable to analyze a country’s actual economic potential. For example, they don’t show if the state’s economy is heavily dependent on the export of resources, which makes it hanging on the prices of these resources. Therefore, even high GDP doesn’t always imply good economic performance (OECD.org, n.d.). It also overlooks the role of scientific innovations and technologies in the economy, which are meaningful indicators of a country’s well-being and potential.
Nominal GDP and real GDP are crucial indicators for measuring states’ economic performance. Simultaneously, they cannot provide a complete outlook of countries’ economies, and the high GDP of a state isn’t always a sign of a healthy economy. While being one of the most commonly-used economic terms, GDP cannot be the sole factor to evaluate a state’s economic level. Other factors, such as inequality index, level of unemployment, industrial production, etc., have to be considered for a comprehensive analysis.
OECD.org. (n.d.). Gross domestic product (GDP). Web.