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Gross Domestic Product

Essay by   •  November 29, 2018  •  Research Paper  •  5,773 Words (24 Pages)  •  218 Views

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1.0 INTRODUCTION

        According to (Iinvestopedia, 2018), gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well (in the United States, for example, the government releases an annualized GDP estimate for each quarter and also for an entire year). GDP includes all private and public consumption, government outlays, investments, private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted). Put simply, GDP is a broad measurement of a nation’s overall economic activity. It may be contrasted with gross national product (GNP), which measures the overall production of an economy's citizens, including those living abroad, while domestic production by foreigners is excluded.

        Not only that, GDP is commonly used as an indicator of the economic health of a country, as well as a gauge of a country's standard of living. Since the mode of measuring GDP is uniform from country to country, GDP can be used to compare the productivity of various countries with a high degree of accuracy. Adjusting for inflation from year to year allows for the seamless comparison of current GDP measurements with measurements from previous years or quarters. In this way, a nation’s GDP from any period can be measured as a percentage relative to previous periods. An important statistic that indicates whether an economy is expanding or contracting, GDP can be tracked over long spans of time and used in measuring a nation’s economic growth or decline, as well as in determining if an economy is in recession (generally defined as two consecutive quarters of negative GDP growth).

        Besides, according to (Kimberly, 2018), gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country. It doesn't matter if they are citizens or foreign-owned companies. If they are located within the country's boundaries, the government counts their production as GDP. The only exception is the shadow or black economy. In economics, the final users of goods and services are divided into three main groups: households, businesses, and the government. One way gross domestic product (GDP) is calculated and known as the expenditure approach that is by adding the expenditures made by those three groups of users.

2.0 RESEARCH OBJECTIVE

        The objectives of having gross domestic product (GDP) are, to distinguish the issues and challenges on economic growth in Malaysia. This is because, nowadays as we know, the issues and challenges faced by gross domestic product in Malaysia are increasing from time to time. As an open, trade-oriented economy, Malaysia will continue to be subjected to the vagaries of the global business cycle. The issue is how well the economy can withstand this current phase of global slowdown without undermining its long-term growth prospects. Not only that, the objective creating the gross domestic product (GDP) is to explain the effects of the economic growth in Malaysia. This is because, at independence (from the United Kingdom) in 1957, Malaysia had a population of just 7.4 million. Its population has since grown rapidly, such that by 2005 the country had some 26.8 million people and, on current estimates, will rise by 2010 to nearly 29 million. The current population shares reflect major changes over time in favour of the Bumiputera, largely because of their higher fertility levels. Apart from natural increase, population growth reflects a steady influx of immigrant labor, primarily from Indonesia, the Philippines, Bangladesh, and Nepal. Before 1957, Malaysia was a lowincome agrarian economy, whose mainstays were rubber and tin production and entrepôt trade entered on Penang and Malacca.

3.0 ISSUE ON USING GDP AS ECONOMIC GROWTH IN MALAYSIA

        According to (Bhattasali, 2008), the Malaysian growth story, like that of other developing countries, can be viewed as a narrative of the structural transformation of a predominant agricultural economy to a more industrialized economy, and then to attempts to transform it even further in the latter part of the 1990s towards a knowledgebased economy. Initially, a primary commodity likes rubber, tin, later and palm oil have dominated the economy. Subsequently, the exportled growth of labourintensive manufactured products sustained economic growth. However, with rising competition from emerging economies, the prospects for longterm growth looked bleaker, and the pressures for further structural transformation increased.

3.1 Slower growth of economy

        Besides, the GDP issues that common in Malaysia are, can make a slower growth. Malaysia’s economy has moderated to its slowest pace in four quarters, as private investment decelerates while public spending continues to decline. Data from Bank Negara showed the country’s gross domestic product (GDP) growth had slowed to 5.4% in the first quarter of 2018 from 5.9% in the preceding quarter. The number also came in below the market expectation of a 5.6% GDP growth for the first three months of the year, based on a median estimate in a Bloomberg survey. If growth slows down or is negative, then you should dust off your resume. Slow economic growth usually leads to layoffs and unemployment. That can take several months. That's because it takes time for executives to compile the layoff list and exit packages.

3.2 The Ringgit currency slumped

        Others than that, the ringgit currency slumped also is the issues of gross domestic product (GDP) in Malaysia. The ringgit has fallen more than 8% versus the US dollar year-to-date and closed at 3.82. The ringgit’s decline yesterday mirrored that of regional currencies following the slump in Chinese equities, with the Shanghai Composite Index falling 8.5%. Crude oil retreated further, with the global benchmark Brent trading at US$54.53 at 5pm, down from Friday’s close of US$54.62 per barrel. US benchmark West Texas Intermediate or WTI was trading at US$47.98, down from Friday’s close of US$48.14. However, rating agencies remain positive on the country’s economic and fiscal fundamentals. Essentially, the sharp fall in ringgit is driven by two market dynamics which is the on-going secular shift to US dollar in anticipation of higher interest rates in the world’s largest economy in the latter part of 2015, and the recent collapse in crude oil prices.

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