5L4Z0022 - Macroeconomic Principles: GDP, Growth, and Living Standards

This essay provides an analysis of Gross Domestic Product (GDP) and its importance in improving living standards, particularly within the context of the UK economy. It discusses how GDP measures a country's total output, income, and overall economic well-being, further elaborating on the formula f...Read More

Introduction to
Macroeconomic
Principles

Contents
INTRODUCTION ..........................................................................................................................1
Question 4....................................................................................................................................1
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
This respective essay will going to answer the understanding of GDP as it is vital for
improving the living standards and everyone will be better off. Gross domestic product measures
the monetary value of the finished goods and services that are bought by the final users in a
country.
Question 4
GDP of the country defines how the people are living in an nation and how well they are
employed to their life. It measures the total output of an economy by adding the total
consumption, investment, net export and government expenditure. Thus, the GDP considered as
the a quality approximation of income for the entire economy in an given period of time. The
standard of living is being derived from per capita GDP and is being determined by dividing the
GDP by the number of people who are living in the country. Generally, increasing global income
translates to the higher living standards (Crowley and Hallett, 2021). GDP basically divided by
population in order to determine the personal income, adjusted for the inflation with the real
GDP. According to the National Statistics said gross domestic product(GDP) is being expanded
by 0.9% in the month of October and November in 2020 in UK. That was the higher than the
economist's expectations and meant the economy was 0.7% larger than in February 2020. but it
is also noted that the there is the concern growth slowed again after the spread of omicron and
the launch of Plan B measures.
The formula for calculating GDP with the help of expenditure approach is given below:
GDP = private consumption + gross private investment + government investment +
government spending+(exports-imports).
Thus, I agree with the given statement GDP growth is necessary which also living
standards will improve and everyone is having the better life. It measures the overall working of
the economy. In UK, people are having better living standard with the rise in the overall GDP of
the economy with the resume in the services such as the transportation, retailing by which they
can ensures welfare and the better living standards to the business in the market (Hantzsche,
Kara and Young, 2019).
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Illustration 1: UK economy above pre-Covid levels in November,2020
As the economy grew strongly in the month before the omicron stuck in the retailing,
couriers, accounting and architects and it is being said by the ONS chief economist Grant
Fitzner.
With the various benefits of GDP, it also have several limitations that may face by an
economy. Although, it is used to demonstrate a country's prosperity still it lacks information
about dispersion of income, spending power and prosperity of UK's citizens. It does not measure
the overall standard of living of a country as sometimes it do not take account of things that may
be important for general well being. For instance, maximum output may be the result of
environmental harm or other macro costs such as noise or air pollution. Or it may came from
minimizing relaxation time or diminution of non renewable resources. Genuine progress index
and gross national happiness index are also excluded from GDP measurement that creates a
short-come in the result. GDP do not cover all the elements of manufacturing of UK and also
sometimes hides some variables that may result in long term deterioration. Production that is not
covered in GDP involves household activities such as cooking, maintenance and cleaning of
home as these tasks are not paid (Milas, 2021). The figures lacks the information about
distribution of wealth and shows unequal spread of income. One of the major limitation of GDP
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is that it does not calculates the effect of pollution and excess resource utilization on the
economy as these also have negative impacts on people and their lives. It does not take into
considerations the extra efforts people of UK put in to increase GDP figures. Rising in numbers
may also be the outcome of extra working hours or increased overtime of employees. As a
criterion of living standards, GDP has certain limitation as some production activities are not
constituted as well as no considerations is taken when quality changes and it provides no data
about distribution of goods and services. The barter transactions taken place in UK are also not
formally recorded in measurement of GDP. Non market production which means products and
services produced for private ingestion with no official record or data are also excluded in GDP
values. GDP limitations poses various issues when UK economists solely focus on its measures
and does not take into account other variables (Oxford Analytica, 2021). Even if two countries
have similar GDP, the distribution of income can vary which is not a consideration point. It is
not also a great tool to indicate if UK's growth pace is sustainable or not. GDP does not
demonstrate all variables of economic activities that leads to weaken the authenticity of
economic welfare figures. Free market activities where sometimes consumers does not pay for
the products they consume are also excluded from GDP measurement. It does not consider
important factors in standard of living of people like their health and life expectancy rates,
mortality rates, social justice rate and political freedom. Calculation of GDP avoids the arise in
externalities such as pollution, overfishing etc which is the result of over exploitation of natural
resources. UK's economic growth is pacing at high rate at cost of these resources and social
welfare. The major issue with GDP development is that it indicates rise in public welfare,
however the increase in production and consumption can also be the result of exploited resources
as well as negative social welfare.
CONCLUSION
As per the above report it has been concluded that GDP is total market value of products
and services manufactured by a nation in certain time span. It is a great tool to measure country's
economic performances and growth rate. It is essential as it provides information about the
intensity of economy and its people efforts in increasing economy's value. GDP is an accurate
representation of per capita income of people of a country and their standard of living.
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REFERENCES
Books and Journals:
Crowley, P. M. and Hallett, A. H., 2021. The Evolution of US and UK Real GDP Components in
the Time-Frequency Domain: A Continuous Wavelet Analysis. Journal of Business Cycle
Research. 17(3). pp.233-261.
Hantzsche, A., Kara, A. and Young, G., 2019. The economic effects of the UK government's
proposed Brexit deal. The World Economy. 42(1). pp.5-20.
Milas, C., 2021. COVID-19 restrictions and UK GDP growth. Available at SSRN 3867485.
Oxford Analytica, 2021. UK GDP would be resilient if restrictions are extended. Emerald Expert
Briefings, (oxan-es).
Online:
UK economy above pre-Covid levels in November,2020 [Online] Available Through
<https://www.bbc.com/news/business-59991870>
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