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Grossdomestic product (GDP)

Aneconomy is an important facet and priority to any government. Themost appropriate tool used to measure the progress of an economy isthe gross domestic product (GDP). According to Corona Brezina, “GDPis the cumulative value of all goods and services produced by acountry’s economy at specified time frame, usually a year orquarter (31)”. The gross domestic product is the universallyaccepted indicator and a measure of the health of an economy.Typically, GDP is compared with the previous one to ascertain theprogress of an economy in the current state. Economists claim that agood GDP should be something between 3 to 4 percent, while a GDP ofbelow 2 percent is considered too low for an economy[CITATION Hes16 p 549 l 1033 ].The paper seeks to determine the significance, and factors thatinfluence gross domestic product. Further, the research aims atestablishing GDP implications and measures that governments can putin line to enhance economic growth and development.


Grossdomestic product (GDP) is a sign of how the economy is doing andexhibits the progress of other economic variables such as inflation,employment, and consumption, among others. A country with asignificant low gross domestic product faces myriad economicchallenges such as unemployment, high inflation rates, and loss ofcurrency values. Measures to stabilize the economy are indispensableto ensure a robust economic growth and development. Numerous factorslead to the worsening of the gross domestic product in a country. Onthe other hand, a country could employ both fiscal and monetarymeasures to bolster the economy.

Significanceof the study

Thestudy of gross domestic product is vital in a country because itcomprises of three significant features of the economy: nationalincome, output, and expenditures. National income is the amount ofcash inflow generated by a country from producing output (productsand services produced within a nation). National output is definedas, “the total amount of the goods and services a countryproduces”[CITATION Hes16 p 548 l 1033 ].Finally, national expenditure entails all the costs involved in theproduction of goods and services.


Grossdomestic product is a macroeconomic tool that measures the value ofnational products in an economy within a particular period andadjusted for fluctuations such as inflation[CITATION deL16 p 9 l 1033 ].Typically, GDP is derived from the formula


Itrepresents the summation of Consumption, Government expenditure,Investment, and the difference between exports and imports (NX).

Thegross domestic product plays a crucial part in the development of acountry and has a significant impact on other economic parameterssuch as standard of living, employment, and investment. Unemploymenthas a direct inverse correlation with gross domestic product[CITATION Enc15 p 200 l 1033 ].A rise in the GDP signifies an improvement in the economy’s health,hence expansion and provision of more job opportunities. On the otherhand, if GDP declines, business will adversely be affected, and moreemployees will lose employment, hence an increase in unemployment.

Thefluctuations in the GDP will significantly affect the standards ofliving. A higher gross domestic product rate will improve thestandard of living because the economy is healthy, businesses arebooming, and people are employed. On the other hand, a low value ofthe GDP implies that the economy is deteriorating, businesses areexperiencing low production output, unemployment at a high rate andthus living standards are adversely affected.

Investmentis significantly affected by GDP because a high value will attractmore investors in the country. A country with a robust economy willtend to act as a hub for investors, tourists, and other foreignventures. Therefore, a higher GDP rate will have a direct impact oninvestment.


Thegovernment can put in place various policies that will bolstereconomic growth and development in the country. For instance, thegovernment can initiate fiscal policies to ensure a high GDP. In thiscase, the government uses taxes as a variable to increase the amountof consumption tax. An increase in taxation on goods and serviceswill ensure the government scoops more revenue from consumption ofessential goods.

Alternatively,the government could employ monetary measures such an increase inmoney supply within an economy. An increase in money supply willtrigger more investments and bolster economy. The government couldincrease the money supply in the market through regulation ofinterest rates. A low-interest rate implies that the cost ofborrowing will drop hence people will seek credit facilities to startinvestment projects and boost their businesses. In the long-run, theeconomy improves and eventually stabilizes. On the other hand, thegovernment could encourage domestic production of goods byprohibiting the importation goods and helping the nationals toproduce more products for exports purposes.


Itis the role of every government to ensure economic stability andpromote economic, social, and political factors that affect the GDP.A healthy economy is vital for a country for a myriad of reasons.Macroeconomic variables such as inflation, unemployment, investment,government expenditure, imports, and exports affect the grossdomestic product. Therefore, the government ought to implement fiscaland monetary policies that ensure sustainability of the economy.


Brezina, Corona . Understanding the Gross Domestic Product and the Gross National Product. New York: The Rosen Publishing Group, 2012.

de La Grandville, Olivier . Economic Growth. Cambridge : Cambridge University Press, 2016.

Encinas-Ferrer, Carlos and Eddie Villegas-Zermeno. &quotForeign Direct Investment and Gross Domestic Product Growth.&quot Procedia Economics and Finance, 24 (2015): 198-207.

Hess, Peter N. Economic Growth and Sustainable Development. New York: Routledge, 2016.