QUESTION 2 : There are mainly four things that are used when interpreting the GD
ID: 1128525 • Letter: Q
Question
QUESTION 2 : There are mainly four things that are used when interpreting the GDP data. They are the APC (average propensity to consume), the APS (average propensity to save), the MPC (marginal propensity to consume), and the MPS (marginal propensity to save). The former are interesting but not much used. The marginal measures are supposed to be the more important. They measure the changes in MPC and MPS from year-to-year to indicate either a growing, shrinking or stagnant economy. Average propensity is said to measure consumers' willingness to consume or save each year. The marginal propensity measures the spending and savings habits as they change from year to year. Keynesians are fixated on spending but I maintain savings is the most important measure. Why? First, savings are nothing more than than consumption deferred. You cannot have production without savings. The capital for expansion must first come from a pool of savings provided by individuals who are deferring spending to some future point. From this pool business can draw the capital they need to grow. So then, I believe, savings must have a multiplier of at least one. Keynesians consider it a leakage from the system. Food for thought. Should savings be considered when calculating the GDP? The MPS is also the basis of the GDP multiplier. This is said to be the measure of many times each dollar is spent in the economy in one year---an interesting concept. The GDP multiplier is a reciprocal which means if you save more the multiplier goes down. If you save less the multiplier goes up. Some in government would have you believe that for every dollar spent by the government it creates $1.74 in total spending. Really? Wouldn't a better measure be to take the C, consumer spending, add it to Ig, business spending, and then dividing it by the GDP. This would give us not 1.74 times each dollar is spent but rather approximately 0.74 times. The other 26 cents is administrative costs. If that be so, why then do the powers in Washington want to send every CEO in private business (or health insurance industry) to jail if their administrative costs exceed 8 percent? The whole GDP model is riddled with holes of estimates, approximations and---dare I say it?---lies. Perhaps I should say half truths. Right now a certain Asian country is said to have a nearly 6% GDP growth. But how? Exports are down. Imports are down. Financial failures by companies and banks are soaring. They have empty (zombie) towns, roads that go no where, etc.. Not to forget rail lines that are not being used because ridership is down.They have a relatively high unemployment rate, at least in the hinterlands. These things are not possible if the true GDP growth was 6 percent. All this reminds me of Sun Rail which was supposed to be the engine (no pun intended) driving a new Central Florida business growth cycle. Fares barely cover 20% of operating costs. So where does the money to operate the system come from? Taxes paid by residents of the counties that Sun Rail traverses. Taxes! Oh no! Really? Is government supported public transportation worth the expense? Are there other alternatives? It is not my intent to persuade you to think like me. God knows there's only room in this world for one of me! I just want you to think! Never blindly accept what someone says. Examine everything. Be a skeptic! Better yet be a curmudgeon! Just in case you don't know what a curmudgeon is, a curmudgeon is someone who sees a dark cloud in every silver lining. My boyhood hero was H.L. Mencken. I wanted to replace him as America's number one curmudgeon when I grew up but P.J. O'Rourke beat me to it!
There are 7 embedded questions.
Is it possible to accurately measure a nations total output and then express it in dollar units?
Explanation / Answer
It is difficult to measure the entire output produced by a nation accurately because there are various leakages in the system which cannot be computed using the traditional GDP approach of measuring national income. Though various changes have been made in the approach like inclusion of environmental cost to calculate the harm that any activity cause to environment. Illegal activities are not recorded in the legal accounts which leads to underestimation of the total national output.
Thus, due to various leakages in the system it is not possible to accurately measure total output of the economy.