Amit Gaurav Cfa

What Everyone Should Know About GDP Amit Gaurav Cfa

Despite all the criticism of GDP as a metric to assess the economic performance, GDP has remained the sole financial magic number since several decades, which is awaited by many at the end of every quarter and at the end of every year. GDP acts as a report card of the prevailing government's economic performance. An average citizen takes the latest GDP growth rate number and compare it against the previous period's number. If the latest number is better than the number in the prior period, then we assume that government's economic performance is satisfactory. But citing the sheer economic significance attached to GDP, an average citizen needs to expand one's horizons and understand this term named, GDP, in a better way- -There is an interesting economic history associated with GDP - how it was conceptualized, adopted and evolved over time. -There is something called "business cycle", which comprises multiple phases or stages- expansion, peak, contraction, and trough. Each such stage affects GDP differently and each such stage may last more than a year. -There are various inputs to GDP - labour, capital and productivity/technological advancements. Each such input has a different weightage in different countries. -There are various driving forces behind the GDP. We need to know all these in a detailed way. It is also quite interesting to know how GDP growth rate usually get impacted during major economic crisis (by learning from past economic crisis). -Though we understand the utility of GDP, but it is imperative to understand the dark side of GDP as well. GDP uses the organized sector data to measure growth in the unorganized sector also and assumes that both the sectors are growing at the same rate. This may lead to misleading economic report card for a country where unorganized sectors contribution to GDP is higher (e.g. Emerging markets such as India). There are various other unfavourable arguments against GDP that we all must know. -There are various alternatives to GDP suggested by eminent economists such as Fordham Index of Social Health (FISH), Genuine Progress Indicator (GPI), Human Development Index (HDI) and Happy Planet Index (HPI). We need to analyse each such alternatives. -There are various myths associated with GDP. One popular myth is - comparing the market capitalisation of trillion-dollar club companies - Apple or Microsoft or Google/Alphabet with the GDP of a country. If market capitalisation exceeds the GDP, then we assume that company has set some important economic milestone. But logically, such comparison is utterly irrational comparison. I hope you would find this book informative and useful.