(lively instrumental music)
- Let's say you've just gotten a job offer
to work in the majestic country
of Bumpsylvania.
Awesome, right?
You've always wanted to live
among the scenic Bumpsylvanian swamp lands
and hear the local ghost toad
sing their famous mating screech.
But, before you pony up
the $549.95 for Rosetta Stone,
Bumpsylvanian Edition,
you want to do a little research
on the economic health of this country.
So you ask your friend,
the economics professor,
how is the economy of Bumpsylvania
doing these days?
One number that will almost
definitely figure into her reply
is the country's GDP.
This stands for Gross Domestic Product.
GDP is a common measure
that is used to roughly represent
the size of a country's economy.
The way you calculate GDP
is both simple as a general principal
and complicated in the details.
The simple version is that
GDP is the value of all
the goods and services
produced within a country
in a given period of time.
Such as, a financial quarter or a year.
So, if we look at Bumpsylvania,
we can calculate it's yearly GDP
by adding up the dollar value
of all the stuff it creates.
All the pork sandwiches, shoe
shines, fashion magazines,
bullets, massages,
motorcycles, Jiu-Jitsu classes,
ghost toad swamp tours
and of course traditional
Bumpsylvanian style wooden hats.
Every item, product or service
brought to market by workers
or other economic resources
located inside the country,
in that year, is part of the GDP.
Coming up with this figure
is not as easy as it sounds.
GDP is actually a highly complex
and abstract statistical instrument
that takes some real work to calculate.
Just one example of
the many complications,
let's say somebody cuts
down some swamp trees
and turns those trees into lumber
and then sells that lumber
to a haberdasher who turns it into
a traditional Bumpsylvanian
style wooden hat.
Do you count the sales of
both the lumber and the hat?
Well, no.
Because GDP is a measure
of the final value of goods and services.
So, if you counted the sale
of the wood to the hat maker
and the sale of the hat,
you'd be counting the same value twice.
GDP is probably the most important measure
of the size and performance of an economy,
but it's not the only one.
There's also GNP,
which is related but slightly different.
GNP stands for Gross National Product.
The difference is,
that GNP is the value of all
the products and services
produced by a country's residents,
even if production takes
place outside of the country.
So, if a Bumpsylvanian business
has a factory making wooden
hats in another country,
the output of that factory
would be included in Bumpsylvania's GNP,
but not it's GDP.
While GDP is a widely used
indicator of economic strength,
many critics point out
that it's not necessarily
the best indicator
of the real health of a nation.
For example, a country
with a large growing GDP
might look strong on paper,
but what if that number is
masking a vast income inequality?
A product economy based on
huge amounts of low-wage labor.
A simple example,
would be comparing GDP with population
to come up with per capita GDP,
which means economic value per person.
So, according to the World Bank,
in 2013 China's GDP
was a massive $9.2 trillion dollars.
Compare that to Luxembourg's
relatively small GDP
of $60 billion dollars.
Yet, in that same year,
China's GDP per capita was
only about $6,800 dollars,
while Luxembourg's was more
than sixteen times that
at about $110,000 dollars.
So, while China's economy
is certainly much larger,
it looks like each individual citizen,
on average, is better off in Luxembourg.
Financially speaking, that is.
So how do you think we should measure
the health of a national economy?
Should other factors like
Gross National Happiness be included?
Let us know in the comments
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