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Gross Domestic Product College

As for 'government spending' it is the sum of government expenditures on final goods and services, including salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government.
First of all, it should be noted that GDP was not designed to evaluate the well-being of a country. Instead, it measures particular types of economic activities within the country, which does not necessarily refer to a standard of living. For one crude example, a country with all goods and services exported will have a high GDP but low well-being of its citizens.
Second, GDP takes into account only documented operations. It does include neither black market, nor non-monetary operations, like bartering, showing inaccurate information for countries where any of these issues plays an important role. Moreover, some companies commit a cross-border trade within themselves in order to escape high taxation - this distorts GDP, creating additional imports/exports data.
Third, GDP indicator shows little information for changes in ecology, society, and lifestyle. For instance, ecological damage is treated by GDP as a double growth: at first, it counts natural resources retrieved, and then it counts services used to replenish natural resources, but it would be far better if the disaster had never occurred in the first place. Additionally, the philosophy of GDP shows wars as contributors to economy, but child upbringing and housework as valueless actions. It ignores volunteer and unpaid work, but instead GDP counts work that produces no net change or that results from repairing harm (e.g. the healthcare industry, where economic activity increases along with a number of unhealthy population).
Fourth, people buy often low-durability goods, and make rare purchases high-durable products, because of their longer use. Sometimes it is possible that the monetary value of the items sold in the first case is higher than that in the second case, in which case a higher GDP is simply the result of greater inefficiency and waste.
Fifth, since GDP does count financial purchases as investments, then if a nation does not spend, but saves and invests overseas, its GDP will be diminished in comparison to one that spends borrowed money. Therefore, accumulated savings and debt are not taken into account so long as adequate financing continues.
Sixth, sometimes different calculations of GDP confuse each other. There are two different types GDP calculation for cross-border comparison: current currency exchange rate, where GDP is calculated by exchange rates prevailing on international currency markets) and purchasing power parity (PPP) exchange rate, where GDP is calculated by PPP of each currency relative to a selected standard. By PPP cross-border comparisons will be different than by current exchange rate method. This causes the so-called Penn effect: real income ratios between high and low income countries are systematically exaggerated by GDP conversion at market exchange rates. (Samuelson 202) Also GDP does not take into account local differences in quality of goods, which is especially true for goods that ...Show more


Gross Domestic Product or GDP has become an important indicator for economic health of a state since the beginning of industrial revolution. Generally, GDP of a country reflects the market value of all final goods and services produced within its borders for a set time period…
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