Advantages and Disadvantages of Real Gdp

2407 Words May 2nd, 2013 10 Pages
| London School of Commerce Belgrade |

A Critical Analysis Of Real GDP
Subject: Managerial Economics

Mentor: Student:
Maja Paunovic Mirko Lazarevic

Belgrade 2013

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY 3
INTRODUCTION
2. ADVANTAGES OF REAL GDP 4
3. LIMITATIONS AND SHORTCOMINGS OF REAL GDP 4 3.1 RENEWABLE FINITE RESOURCE 5 3.2 OLD AND CHILD CARE 5 3.3 UNDERGROUND ECONOMY 5 3.4 UNEMPLOYMENT 6 3.5 THE INFLATION RATE 6 3.6 POLUTTION 7 3.7 LEISURE 7 3.8 POPULATION 7 3.9 INEQUALITY OF WEALTH 7
4. CONCLUSION 8
REFERENCES 9

1. Executive summary

The gross domestic indicator (GDP) is
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Multinational corporations use real GDP when deciding where to send their investment dollars or headquarter their operations. National governments use real GDP to set currency exchange rate targets and evaluate the effectiveness of economic policy by comparing one year’s real GDP data against other years. Central banks put significant weight on real GDP data when determining interest rates and other fiscal policy.
Real GDP is also used to compute economic growth, known as the GDP growth rate. This is calculated by comparing each quarter to the previous one. If real GDP were not used, then you wouldn’t know whether it was real growth, or just price and wage increases. The ideal GDP growth rate is between 2-3%. The GDP growth rate is critical for investors to adjust the asset location in their portfolios. Investors also compare countries’ GDP growth rates – countries with strong growth attract more investors for their corporate stocks, bonds and even their own sovereign debt.
3. Limitations and shortcoming of real GDP

GDP per capita is not a direct increase of living standards and quality of life in a country, so policies aimed at maximizing GDP may be seen as ill conceived. This is due to many reasons, including;

3.1 Renewable finite resource:

Most of country may grow rapidly by exploiting their non-renewable finite resources such as oil and forests. They may also over- exploit resources
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