Macrowritten1 Essay Example | Topics and Well Written Essays - 1000 words

Macrowritten1 - Essay Example Real GDP (adjusted) is based on the prices of the products and services produced in a year that have been adjusted with inflation and deflation to perfectly predict the decrease or increase in production for comparison of the economic development from year to year. It is calculated in relation to price index of a given particular year (Experimental Economics Centre, 2006). For economic policy makers, real GDP hold enhanced importance compared to the use of nominal GDP. The inflation and deflation need to be considered while calculating the exact outcome of the economic performance of a country in a given year. This will depict the actual growth or decline in the performance of the economy and would help in formulating plans for future developments of the economy. It will also help the government in preparation of the fiscal policy. GDP is calculated only for the gross count of products and services that are purchased and sold with no difference between transactions that sums up to the well being and those that diminishes it. It assumes that every economic contract adds to well being but actually it is not so. GDP overlooks everything that occurs outside the sphere of monetized exchanges despite its significant contribution to well being. The crucial household performance and the sector of volunteer services are completely neglected. The significant contribution of the elder care, childcare and other home based tasks and volunteer works in the community are not taken into consideration in the GDP as those do not involve monetary transactions. When the non-market economy declines and the function shifts to monetized sector, GDP represents such activities as economic advancement. There is a rise in GDP temporarily, but the debt needs to be repaid as it becomes a burden for the economy. The GDP breaches the essential accounting principles by treating the exhaustion of natural capital as income, rather than as the decrease of an asset.