Gross Domestic Product is not the best way of measuring financial health

The percentage of progress in GDP is used, at times, to measure health of the economy. The United States GDP estimate has been downgraded recently to just a couple percentage points. The health of the economy, as calculated by the Fed and others, is often measured using GDP. However, the Gross Domestic Product is an outdated and inaccurate way of measuring economic growth.

GDP facts

All that the GDP is, is one number. It represents that country's value of goods and services. GDP began as a measurement of the standard of living in various nations, but it’s used in several other ways. When adding private consumption, gross investment, government spending and exports and subtracting the gross amount imported, GDP could be found. Congress was given a report of GDP in 1934 for the first time. Simon Kuznets put it together. The Federal Reserve bases many of its monetary decisions, at least partially, on the Gross Domestic Product figure.

Inflation, customer price and the Gross Domestic Product measure

The limitations of the GDP have been clear for a long time. The Bureau of Economic Analysis releases a number referred to as “real” Gross Domestic Product that adjusts the number for inflation. Without that adjustment, the Gross Domestic Product would always appear to be growing with the rate of inflation. The inflation and deflation of household goods is measured by the Customer Price Index. This does not affect the Gross Domestic Product in any way. There could be a rise of Gross Domestic Product with a 400 percent increase in household items costs. This is despite the disposable income Americans have being decreased.

Charge card and GDP similarities

There is one huge limitation the GDP has. It cannot take negative numbers into account. The Gross Domestic Product can be compared to a household budget easily. It’s the way of measuring household finances depending on money, credit cards and money, spent. You will find many things left out. There is the possibility a mortgage payment will not be made, the spending budget could be damaged and eventually the cards have to be paid. It is too simple to really be correct to measure the economic progress in the U.S.

Information from

The Money Alert

themoneyalert.com/GDP.html

Blogging Stocks

bloggingstocks.com/2010/09/10/economists-lower-2011-u-s-gdp-growth-forecasts-to-2-5/

Investopedia

investopedia.com/study-guide/cfa-exam/level-1/macroeconomics/cfa3.asp