Question

When comparing the GDP of different countries, two issues immediately arise. What are these issues and how does one account for these while comparing the GDP for different countries? Recently New Zealand has decided to not use GDP as a way to measure an economy. Should the US follow their lead, why or why not?

Answer 1

Gross domestic product is a statistical tool which helps in knowing growth,production rate and sales rate of a country.Generally,GDP is used to compare the growth rate of the economies of different countries.But while comparing few issues arise immediately.Among them two issues are population and currency. Inorder to overcome these issues one should use special techniques to calculate and convert GDP.They are:

• Usually rate of population is different for different countries.Each country has its own population rate and this might not be same for remaining countries.So this is considered as main issue which need be resolved while comparing GDP with other countries.GDP rises when there is growth in population rate and GDP tend to decrease when population rate decreases.It is difficult to calculate or compare countries with different population rate.To overcome this, one should convert the population rate of different countries into similar number notation.Population rate should be changed into same units and digits.Once it is changed,then it would be easy compare and analyse if the GDP has increased or decreased. This might resolve problem upto some extent.
• Another prominent issue faced during comparing GDP is currency value.As every country has different currency,it would be difficult to compare GDP with other countries.While comparing GDP of two countries,the total revenue of those countries should be converted into similar currency value.Example,GDP of United states and India is compared,then the currency value should be either converted into rupee or dollar.Then there would be no difficulty while comparing GDP.

New Zealand has decided not use GDP to compare their growth with other countries.United States would still remain on top even if it doesn't use GDP as a way to measure growth.United States is one of the leading economy and gives tough competition to other countries.It is a developed country as all the sectors are developed.US has best education system,multinational company,high employment rate,etc.It's production level and sales rate is maximum and it even exports those goods to foreign countries.Since production level is high,it is due to appointing maximum workers by creating job opportunities.As most of the people are employed, and they can lead a good standard of living.US has best educational institutes and people from different countries tend to get qualified from these institutes.Therefore it is clear that US is an overall developed country and even if it doesn't follow the GDP method to measure its growth,it would still leave other countries behind in the matter of economic growth.

Hence,US is not effected by changing the method of measuring economic growth as its overall development is quite high when compared to other countries.