Introduction to macroeconomics Essay Example | Topics and Well Written Essays - 1500 words

Introduction to macroeconomics - Essay Example A single estimate is then derived and published as the official estimate of GDP. There are two ways to measure the GDP, Real and the Nominal. Every country uses estimates of GDP in real terms as the international standard to measure growth in an economy. It is essential to follow a common standard so as to allow meaningful comparisons between different economies. United Kingdom follows the international conventions and European Union guidelines. This paper examines the GDP as a metric for measuring the health of an economy. It begins by analysing the distinction between the real and the nominal GDP and then goes on to elucidate the voids in using GDP as a sole quantifier of national economy. It then suggests other alternatives and gives the relative merits of using other systems to access the state of national economy of any country. The GDP of every economy tends to rise over a period of time. ... The real GDP is the value of the GDP at constant prices using a given base year value. It excludes any inflation and reflects the changes purely in volume terms; thus giving the actual level of economic activity. It is estimated using chained volume measures. The nominal GDP gives the value of GDP at current prices, prices for which year the GDP is taken. Growth in nominal GDP reflects the effects of inflation, as well as real GDP growth .It reflects change in value terms. For example to calculate the value of 1999 nominal GDP, we will sum the value of all expenditures in 1999, using the prices that prevailed then. The real GDP would be calculated by taking the sum of the values of all the expenditures in 1999, but using the prices that prevailed in the base year (2003). When the economists need to quantify inflation they take the ratio of nominal to real GDP, and take its percentage. This then is called the GDP deflator. A Time Series data of nominal and real GDP. Year GDP at current market prices (millions of pounds) GDP at constant (2003) market prices (millions of pounds) GDP Deflator (index 2003=100) Population (in millions) 1990 558,160 814,956 68.49 57.237 1991 587,080 803,892 73.03 57.439 1992 611,974 805,699 75.96 57.585 1993 642,656 824,085 77.98 57.714 1994 680,978 859,566 79.22 57.862 1995 719,747 884,748 81.35 58.025 1996 765,152 909,102 84.17 58.164 1997 811,194 936,717 86.60 58.314 1998 860,796 968,040 88.92 58.475 1999 906,567 997,295 90.90 58.684 2000 953,227 1,035,295 92.07 58.886 2001 996,987 1,059,648 94.09 59.113 2002 1,048,767 1,081,469 96.98 59.322 2003 1,110,296 1,110,296 100.00 59.554 2004 1,176,527 1,146,523 102.62 59.834 2005 1,224,715 1,167,792 104.87 60.209 Source : http://eh.net/hmit/ukgdp/ Efficacy of GDP as a