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Economic Terms and Limits of GDP Usefulness

For first year students using unfamiliar or finding the right terminology when asked to discuss certain aspects of a field of study can be challenging. Economics is no different from other professions that use certain abbreviations in which to explain segments of their specific field. GDP per capita is one example that economists use to define and indicate the health of the economy. In analyzing the GDP per capita of a country, such as Saudi Arabia, it would be beneficial to understand and use the economic terminology that explains and defines the country's overall economic health and know the differences between indicators. This purpose of this exercise is provide a glossary of economic terminologies so that a first year student can fully express terminology and an expanded presentation of what the GDP per capita involves and what it does not capture when talking about the economic health of a nation. For example, GDP per capita, while it can indicate how the general population is doing economically, it does not define the general well-being of the average person, such as enduring the impact of a negative environment, non-existence of leisure time, or scarcity of resources (Callen, 2012).

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Glossary of Economic Indicators

a. GDP (Gross Domestic Product: The sum of the gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Formula: GDP = Consumption + Investment + (Government Spending) + (Exports - imports).

b. GDP per capita: The approximation of the value of goods produced per person in the country, equal to the country's GDP divided by the total number of people in the country. Formula: GDP per capita = GDP divided by the Population.

c. GNP (Gross National Product): The estimated value of the total worth of production and services, by citizens of a country, on its land or on foreign land, calculated over the course on one year. Formula: GNP = GNP + NR (Net Income inflow from assets abroad or Net Income Receipts) - NP (Net Payment outflow to foreign assets).

d. GDP PPP (Purchase Power Parity): The gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as a U.S. dollar has in the United States. Purchasing power parities (PPPs) are the rates of currency conversion that eliminate the differences in price levels between countries. Formula: GDP PPP = GDP divided by the PPP exchange rate.

e. GNI (Gross National Income): The gross domestic product (GDP) plus net receipts of primary income (employee compensation and investment income) from abroad. GDP ...

Solution Summary

Glossary of economic terminologies and an expanded presentation of what the GDP per capita involves and what it does not capture when talking about the economic health of a nation. 881 words with references.

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