Your friend at work says the U.S. economy is not doing well: \"We are just not a
ID: 1107032 • Letter: Y
Question
Your friend at work says the U.S. economy is not doing well: "We are just not a strong economy anymore." You are not entirely convinced by her argument, so you do some research. Here is what you find:
There are three major powers in the world economy according to total GDP: China at $21.3 trillion; the EU at $19.2 trillion; and the United States at $18.6 trillion (all in real 2016 dollars). Maybe your friend is right?
Then you look at per capita GDP and it does not seem to tell the same story: China per capita GDP is $15,400; EU per capita GDP is $37,800; and U.S. per capita GDP is $57,300. Maybe your friend is wrong?
Perhaps we really need to understand what GDP measures and what it does not measure.
Using the above facts, make the case that the United States is still economically strong.
What does GDP measure and what does that tell us about our country’s economic strength?
Do you feel that GDP is valuable in understanding our country’s economic strength? Explain why or why not.
Do you believe that there is a better measure of a country’s economic strength that we should also use (in addition to GDP)? Explain your answer. If you don’t think there is, explain why.
Explanation / Answer
The real strength of an economy is determined by its per capita GDP combined with the purchasing power parity (PPP) prevailing in the economy. PPP reflects the purchasing power that the currency of an economy commands to purchase actual goods and services.
Therefore, the above scenario still represents united states to be in a better position than other economies as its per capita GDP is higher than the other two economies, i.e China and EU.
GDP is not a valuable factor in understanding a country's economic strength. GDP is simply the value of goods and services produced in an economy in a particular year. It, therefore, is directly proportional to the population size of an economy. Having a higher GDP is not the key factor that determines the strength of an economy. Per capita GDP gives a better picture of the living standard of the population residing in an economy. But, it also needs to consider PPP of the currency to accurately determine the status of the economy's development because nominal currency is not a correct representative of actual goods and services.
Hence, purchasing power parity prevailing in an economy, with its per capita income reflects true picture of country's economic strength rather than its GDP.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.