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Gross Domestic Product Uses and Limitations

Uses

Gross domestic product (GDP) is the sum worth of goods and services created in a country over a given period. It is calculated by summing the value of goods and services produced for sale and includes given nonmarket production, for instance, health or education services provided by the government. GDP is one of the most commonly used measures of an economy’s productivity. It measures the performance and size of a country’s economy. Relative to Saint Leo’s core values, GDP can be thought of as a measure of the excellence of an economy, the sum output of the work put in by all members of the economy. Responsible stewardship, another core value of the university, can be reflected in the GDP in the case of an economy. Responsible stewardship is about the optimization of resources for ultimate production. GDP growth rate over different periods is poised as the best indicator for a nation’s economic growth. GDP is also used to assess the impact of monetary or fiscal policies in place by the government on economic production and growth.

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Limitations of GDP

A major limitation of GDP is that it emphasizes economic output ahead of economic well-being. GDP per capita is often used as an indicator of the standards of living of the members of an economy. Two disadvantages of doing this are that it does not take into account economic disparity between members and does not capture other aspects of life that constitute economic well-being (Jones & Klenow, 2016). Relative to Saint Leo’s core values, GDP disregards personal development. GDP only considers the economic output of individuals. It gives no attention to whether this is achieved under harsh conditions of work or other factors impacting the quality of life of individuals, such as environmental pollution or health hazards.

The second limitation of GDP is that in its calculation of an economy’s production, it fails to include the underground economy. The underground economy is made up of unreported income, which in some nations constitutes a significant proportion of the economy (Watanabe et al., 2018). GDP relies on official data and does not take into account this part of the economy. It is, therefore, not an accurate reflection of a country’s output.

Another disadvantage of GDP is that it is geographically limited. Economies today are global entities with policies allowing commercial activities beyond nations and borders. In its calculation, GDP fails to incorporate this fact. For instance, production in a nation by foreign firms that remit some of the money back to their countries is calculated as part of the production by the country hosting the firms. This can give a false image of a country’s economic output by overstating its production.

Relationship between economic well-being and social well-being

Economic well-being is the state of having present and future financial security and the opportunity to make economic choices that give an individual personal fulfillment. Social well-being, on the other hand, is the ability to establish meaningful positive ties with other people that result in satisfaction and happiness. Social well-being is associated with thriving economies thus economic well-being. A characteristic of social wellness is peace. Economies thrive in peaceful communities where individuals respect the rights of others create positive relationships. Healthier working environments are associated with increased productivity of employees (Krekel et al., 2019). Part of a healthy work environment is positive employer-employee relationships. According to Krekel et al. (2019), a firm, which respects the rights of its employees and the community in which it operates is likely to realize the benefits of a motivated workforce and loyalty from the community as customers. An illustration of this is the rise of corporate social responsibility as a factor influencing the success of companies. Social well-being is, therefore, a determinant of economic well-being. An employee who works in a socially unhealthy environment will not feel personal fulfillment or satisfaction with their economic activity. This is one of the critical aspects that GDP fails to consider. A worker productive courtesy of forced labor, for instance, is not economical well, yet GDP only looks at the production and via GDP per capita, concludes that members of the economy are well.

Going by the relationship between economic well-being and social well-being discussed, Saint Leo’s core values can be at the center of economic growth and productivity. Community, respect, and integrity are all precursors for social well-being, which, as seen above, impact the economic growth and productivity of individuals in an economy. Responsible stewardship is another of the core values, which advocates for optimal utilization of available resources, which ultimately amounts to productivity and economic development. This value also ensures that resources must be utilized responsibly, meaning productivity will be guided by ethics and morals in society. Excellence, which is another one of the values, can also be translated into concerted efforts to increase productivity and ensure economic growth. Generally, all Saint Leo’s core values are tailored to growth either at the individual or collective level. Economic growth and productivity align with these core values of the university.

References

Jones, C. I., & Klenow, P. J. (2016). Beyond GDP? Welfare across countries and time. American Economic Review, 106(9), 2426-57. Web.

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Krekel, C., Ward, G., & De Neve, J. E. (2019). Employee well-being, productivity, and firm performance. Saïd Business School WP, 4. Web.

Watanabe, C., Naveed, K., Tou, Y., & Neittaanmäki, P. (2018). Measuring GDP in the digital economy: Increasing dependence on uncaptured GDP. Technological Forecasting and Social Change, 137, 226-240. Web

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