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It’s worth noting that improving GDP is not the only goal of economic policy and that there can be trade-offs between economic growth and other social and environmental factors. It’s important to consider a range of factors when making policy decisions to improve the overall well-being of society.
There are several factors that contribute to a country’s economic growth, including political stability, a well-educated workforce, investment in infrastructure, technological innovation, and favorable government policies. Here are some suggestions for achieving the fastest-growing economy:
Economic growth is not the only goal of economic policy, there can be several economic growths and other social and environmental factors. It’s important to consider a range of factors when making policy decisions to improve the overall improvement ofsociety.
It’s important to understand that repairing the world requires collective action and collaboration across sectors and communities. By working together to address the challenges facing our world, we can create a more just, equitable, and sustainable future for all.
It’s important that these suggestions may vary depending on the specific economic conditions and challenges of a country or region. Governments and policymakers should carefully consider the economic context and potential impacts of their policies and investments.
How to encourage CORPORATESand SMEs for economic growth?
Encouraging corporates and SMEs is critical for economic growth as they are important drivers of job creation, innovation, and competitiveness. Here are some ways to encourage corporates and SMEs:
Overall, encouraging SMEs and Corporates requires a holistic approach that involves policies and incentives that address the specific needs and challenges of different sectors and industries. Governments should work closely with businesses and stakeholders to identify opportunities and develop policies that support economic growth and development.
What is GDP and Why Is It So Important to Economists?
Gross domestic product (GDP): This is one of the most common indicators used to track the health of a nation’s economy. It includes several different factors such as consumption and investment measure of the market value of all the final goods and services produced in a specific period, often annually.
GDP measures the total value of all final goods and services produced in a country. Here’s its formula, comparison of real vs. nominal, and GDP vs. GNP.
What is GDP and how is it calculated?
Written out, the equation for calculating GDP: GDP = private consumption + gross investment + government investment + government spending + (exports – imports).
What is a good GDP?
The GDP growth rate is how much more the economy produced than in the previous quarter. The ideal rate is between 2 and 3%. In a healthy economy, unemployment and inflation are in balance. The natural rate of unemployment will be between 4.7% and 5.8%.
Is a high GDP good or bad?
Does High GDP Mean Economic Prosperity? Economists traditionally use the gross domestic product (GDP) to measure economic progress. If GDP is rising, the economy is in good shape, and the nation is moving forward. If GDP is falling, the economy is in trouble, and the nation is losing ground. Jun 25, 2019
The formula to calculate GDP is of three types – Expenditure Approach, Income Approach, and Production Approach.
Formulas for Calculation of GDP
There are three equations to calculate GDP they are as follows:-
There are three main groups of expenditure household, business, and the government. By adding all expenses we get the below equation.
GDP Formula = C + I + G +NX
Where,
This formula can also be written as:-
GDP Formula = Consumption + Investment + Government Spending + Net Export
Expenditure Approach is a commonly used method for the calculation of GDP Equation.
The income approach is a way to calculate of GDP Equation by total income generated by goods and services.
GDP Formula = Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income
Where,
From the name, it is clear that value is added at the time of production. It is also known as the reverse of the expenditure approach. To estimate gross value added total cost of economic output is reduced by the cost of intermediate goods that are used for the production of final goods.
Gross Value Added = Gross Value of Output – Value of Intermediate Consumption.
The real GDP formula can be defined as an inflation-adjusted measure that shall reflect the value of services and goods that are produced in a given single year by an economy which can be expressed in the prices of the base year, and that can be referred to as “constant dollar GDP,” “inflation corrected GDP.”
The formula for real gross domestic product calculation is:
Real GDP Formula = Nominal GDP / Deflator
Where Deflator is a measurement of inflation
Fiscal deficit
Definition of ‘Fiscal Deficit‘ Definition:
The difference between the total revenue and total expenditure of the government is termed a fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
A fiscal deficit is a shortfall in a government’s income compared with its spending. A government that has a fiscal deficit is spending beyond its means. A fiscal deficit is calculated as a percentage of gross domestic product (GDP), or simply as total dollars spent more than income. Aug 16, 2019
A budget deficit is a difference between total receipts and total expenditures. If borrowings and other liabilities are added to the budget deficit, we get Fiscal deficits. So, when we say the revenue deficit of the government is decreasing means, the government earns money closer to the expected revenue of that fiscal year. Feb 8, 2017
Originally Answered: What is the difference between budget deficit and fiscal deficit?
The Govt. collects receipts in the form of taxes and interests and spends the money on development works. If the expenditure exceeds the receipts then a deficit occurs.
To know the difference between fiscal deficit and budget deficit, one has to know 4 terms
Revenue receipts consist of receipts from all types of taxes and interest receipts from state government dividends payments from other nontax receipts.
Revenue expenditure is normally met out from revenue receipts and consists of spending in general administrative services, social and community services, economic services, interest payment to the borrowing from the market and financial institute, etc.
Capital receipts consist of net recoveries of loans and advance payments to state government, net market borrowing and other liabilities, net small saving schemes, etc.
Capital expenditure consists of expenditure on capital items, i.e. loans to state government, for financing projects, capital expenditure on defense, etc.
Total receipt consists of revenue and capital receipts whereas total expenditure consists of revenue expenditure and capital expenditure.
Now budget deficit=total receipts-total expenditure
And fiscal deficit=total receipts excluding market borrowing and other liabilities -total expenditure
It can also be expressed as the Sum of the Budget deficit plus Borrowing and Other Liabilities.
Example showing Calculation of Budget Deficit and Fiscal Deficit.
(Value in Millions) and the figures are assumed
1. Revenue Receipts =300,000
2. Capital Receipts =160,000
a) Loan recoveries + other receipts =10,000
b) Borrowings & Other liabilities =150,000
3. Total Receipts (1+2) = 460,000
4. Revenue Expenditure =350,000
5. Capital Expenditure =110,000
6. Total Expenditure (4+5) =460,000
7. Budget Deficit (3-6) = NIL
8. Fiscal Deficit [1+2(a) – 6 =3- 2(b)-6=7 + 2 (b)] = 150,000
Hence the summary is if govt. expends more than it collects then a deficit occurs it is known as a fiscal deficit and to finance the deficit it borrows money. If it borrows the amount equal to the fiscal deficit, then the budget deficit becomes zero and if it borrows less than the fiscal deficit amount, then the budget deficit occurs.
There is also another deficit known as the primary deficit and it does not have any policy significance.
Primary deficit=fiscal deficit-interest payment
The interest payment is a part of revenue expenditure. In the above example, out of total revenue expenditure of 350,000, the interest payment is 120,000 then the primary deficit is = 8 – interest payment part of 4 = 150,000 – 120,000 = 30,000
Real GDP per capita is a measurement of the total economic output of a country divided by the number of people and adjusted for inflation.
Per capita income (PCI) or average income measures the average income earned per person in a given area (city, region, country, etc.) in a specified year. It is calculated by dividing the area’s total income by its total population.
As an example of the per capita income of an African nation, the per capita income of Botswana in 2012 was $16,800, PPP.
Real income is the income of individuals or nations after adjusting for inflation. It is calculated by dividing nominal income by the price level.
Measuring the level and rate of growth of national income is important for keeping track of:
Only those incomes that come from the production of goods and services are included in the calculation of GDP by the income approach.
We exclude:
Transfer payments e.g. the state pension; income support for families on low incomes; the Jobseekers’ Allowance for the unemployed and other welfare assistance such as housing benefits and incapacity benefits
Private transfers of money from one individual to another
Income not registered with the tax authorities: Every year, billions worth of activity is not declared to the tax authorities. This is known as the shadow economy.
Published figures for GDP by factor incomes will be inaccurate because much activity is not officially recorded – including subsistence farming and barter transactions
Gross Value Added and Contributions to a Nation’s GDP
Value added is the increase in the value of goods or services as a result of the production process
Value added = value of production – value of intermediate goods
Some products have a low value-added.
Other goods and services are such that lots of value can be added as we move from sourcing the raw materials to the final product.
Manufacturing
Manufacturing is one of the production industries, which also includes mining, electricity, water & waste management, and oil & gas extraction. In 2015, the UK manufacturing sector accounted for 10% of the total UK GDP and it accounted for 8% of jobs.
Service sector industries
The main service sector industries in the UK are:
GNI:
Gross national income: Gross national income uses the income approach based on nationality as the total value produced outside the country.
GNP:
Gross national product: Gross national product uses the production approach based on nationality as goods and services produced by a national of the country. In contrast, the Gross “National” Product, GNP, defines the inclusion criterion based on nationality: It is the market value of all final goods and services produced by nationals of the country, regardless of whether the production occurred within or outside of the country’s borders.
Note: Final goods and services sold for money are applicable for GDP calculation.
List not included in GDP: The economic activities not added to the GDP include the
Unpaid work within the family, Volunteer, etc.
Non-monetary compensated work
Goods are not sold in the market
Bartered goods and services
Black market
Illegal activities
Digitally transfer payments
Sales of used goods
Sales of goods made outside the borders of the country
Transfer payments carried out by the government
Illegal sales of services and goods
Intermediate goods and services that are used for other final goods and services.
The goods and services that are included in GDP can be divided into four main categories:
What are the goods and services not included in the GDP?
Several types of goods and services are not included in GDP:
It’s important to note that while these types of activities are not included in GDP, they still have an impact on the economy and people’s lives. For example, household chores and volunteer work contribute to the well-being of society, even if they are not counted in GDP.
Nominal GDP is the raw measure of a country’s economic output without adjusting for inflation. It is calculated by multiplying the number of goods and services produced by their current market prices. Nominal GDP can be misleading because it does not account for price changes over time, making it difficult to compare economic output across different years.
Real GDP, on the other hand, adjusts for changes in prices over time by using a constant price level, usually from a base year. Real GDP is calculated by multiplying the number of goods and services produced in a given year by the prices from the base year. By using a constant price level, real GDP provides a more accurate measure of a country’s economic output over time and allows for meaningful comparisons across different years.
For example, if a country’s nominal GDP increased by 4% from one year to the next, but inflation was 2%, then the real GDP would have increased by only 2%. The real GDP figure would reflect the actual increase in economic output, while the nominal GDP figure would overstate it due to inflation.
In summary, nominal GDP represents the raw measure of a country’s economic output, while real GDP adjusts for changes in prices over time to provide a more accurate measure of economic growth. Real GDP is often used to compare economic output across different years, while nominal GDP is useful for understanding the current state of the economy.
Boosting GDP requires a multifaceted approach, but here’s one innovative idea that could help:
Investing in renewable energy infrastructure and technologies can be a powerful way to boost economic growth while also reducing carbon emissions and addressing climate change. Renewable energy sources like solar, wind, and hydropower are becoming increasingly cost-competitive with fossil fuels, and investing in these technologies can create jobs and spur economic growth.
In addition to investing in renewable energy infrastructure, other innovative ideas could help boost GDP, such as:
Of course, these ideas need to be implemented within the broader context of sound economic policies and a supportive business environment. But investing in renewable energy infrastructure, education and skills training, entrepreneurship and small business development, research and development, and international trade can all be powerful ways to boost GDP and promote economic growth.
Here’s an innovative idea for job creation: Establishing a national service program that provides opportunities for young people to serve their communities and gain valuable work experience. This program could be modeled after the Peace Corps or AmeriCorps in the United States, which provide opportunities for volunteers to work on a variety of community service projects both domestically and abroad.
The program could be designed to address specific needs in the community, such as infrastructure development, environmental conservation, education, or healthcare. Participants could receive training and education in their chosen field, as well as a stipend or living allowance to support them during their service.
This program could provide several benefits.
First, it could create jobs and provide valuable work experience for young people, who are often among the most affected by unemployment.
Second, it could address critical needs in the community, such as infrastructure development or environmental conservation.
Third, it could help build social cohesion by bringing together people from diverse backgrounds to work towards a common goal.
Additionally, the program could be designed to be sustainable over the long term, providing ongoing opportunities for service and job creation. By investing in this kind of program, governments could create a pipeline of skilled workers who are committed to serving their communities and making a positive impact on the world.
How GDP is undervalued?
When govt. subsidizes public transportation, health care, education, technical training schools, and so on. All agricultural and industrial products and services in China are generally very cheap.
The total of all the lower values will still be the lower GDP value internationally.
The US pays attention to social welfare. High welfare support also requires the US government to have strong financial support out of thin air with QE (ie Qualitative Easing) printing paper money and increasing national debts.
The GDP statistics of China are divided into three parts from the perspective of industry, agriculture, and service industries. Total GDP is underestimated because a large part of China’s GDP is not included in the statistics. The GDP algorithm of China is a combination of the production method and the income method. The production method is mainly used for the calculation of the increase in agricultural and industrial output value, and the income method is used for the increase in the output value of the service sector. China has increased its investment in scientific research, focusing on cultivating its core competitiveness and the quality of economic development will be much stronger.
India and Vietnam’s GDP algorithms have been more aggressive in recent years. India has changed its GDP algorithm to use market price. This is the main reason why India has suffered so many losses during the Covid-19 pandemic and the data is still good. The output of agricultural products in India decreased, but the market price has risen and the GDP obtained by India will continue to rise.
Vietnam has included in its GDP the income of small and medium-sized private enterprises that it undercounts in its own country’s message of confidence to the outside world and it is not harmful. After all, attracting foreign capital will bring more benefits. The increase in the proportion of construction and service industries also makes Vietnam’s GDP data look better.
Good-looking data can indeed attract more foreign capital, but such a false bubble always be punctured.
INFLATION>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
When the US sneezes the rest of the world catches a cold! It looks like it no longer applies to China. Its economy is big enough and its reliance on the US is small enough that it’s become somewhat independent of the American economy.
Inflation is low in China because it’s doing well and its let go of the American anchor. No longer tied to it.