Answer to Question #127955 in Economics of Enterprise for aa5

Question

-Explain the Gross Domestic Product (GDP):

- Explain the Consumer Price Index (CPI):

Answer 1

The aggregate monetary value of total goods and services available in the final market is referred to as the the Gross Domestic Product (GDP). It is the most critically imperative variable for analyzing growth in the economy, with many planning decisions centered on the level of GDP growth rate (Slepov et al., 2017). GDP calculations are made on an annual basis, as well as quarterly, yearly. The calculations may result in an excess (trade surplus) or a negative (trade deficit). 

Since GDP is a measure based on current prices, there is a high likelihood for it to be affected by inflation, with a rise in price levels, resulting in a concurrent rise in the GDP estimate. The contrary is true when price levels fall. The GDP estimate is projected to fall too (Kummu et al., 2018). Even though there are various methods through which GDP estimate could be obtained.

A measure of weighted averages of total goods in a consumer basket is referred to as, Consumer Price Index (CPI). CPI statistics help in the inflationary rates monitoring, since as prices change, so does the CPI. The use of CPI however, as a measure of inflation, has been termed biased. CPI does measure fluctuation in prices of goods and commodities, but this excludes investment and savings of the individual consumers.

Reference.

AB, N., & QC, B. (2019). Consumer price index...

Baker, D. (2016). Getting Prices Right: Debate Over the Consumer Price Index: Debate Over the Consumer Price Index. Routledge.

Kummu, M., Taka, M., & Guillaume, J. H. (2018). Gridded global datasets for gross domestic product and Human Development Index over 1990–2015. Scientific data, 5, 180004.

Slepov, V. A., Burlachkov, V. K., Danko, T. P., Kosov, M. E., Volkov, I. I., Grishina, O. A., & Sekerin, V. D. (2017). The country's economic growth models and the potential for budgetary, monetary, and private financing of gross domestic product growth.