GDP overview

Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic situation.
Though GDP is typically calculated on an annual basis, it is sometimes calculated on a quarterly basis as well. In the U.S. for example, the government releases an annualized GDP estimate for each fiscal quarter and also fir the calendar year. The individual data sets included in this report are given in real terms, so the data is adjusted for price changes and is, therefore, net of inflation.
The calculation of country’s GDP encompasses all private and public consumption, government outlays, investments, additions to private inventories, paid in construction costs, and the foreign balance of trade. Of all the components that make up a country’s GDP, the foreign balance of trade is especially important. The GDP of a country tends to increase when the total value of goods and services that domestic producers sell to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy. When this situation occurs, a country is said to have a trade surplus. If the opposite situation occurs when the amount of domestic consumers spend on foreign products is greater than the total sum of what domestic producers are able to sell to foreign consumers, it is called a trade deficit. In this situation, the GDP of a country tends to decrease. GDP can be computed on a nominal basis or a real basis, the latter accounting for inflation. Overall, real GDP is a better method for expressing long-term national economic performance since it uses constant dollars. For example, suppose there is a country that in the year 2009 had a nominal GDP of $100 billion. By 2019, this country’s nominal GDP had grown to $150 billion. Over the same period of time, prices also rose by 100%. In this example, if you were to look solely at the nominal GDP, the economy appears to be performing well. However, the real GDP would only be $75 billion, revealing that, in actuality, an overall decline in real economic performance occurred during this time.
Standard of living is a broad term that encompasses many factors- including some that are not bought and sold in the market and some that are- the level of GDP per capita, for instance, captures some of what we mean by the term standard of living, as illustrated by the fact that most of the migration in the world involves peoples who are moving from countries with relatively low GDP per capita to countries with relatively high GDP per capita.
To understand the limitations of using GDP to measure the standard of living, it is useful to spell out some things that GDO doesn’t cover that are relevant to standard of living. Because many factors that contribute to people’s happiness are not bought and sold, GDP is a limited tool for measuring standard of living. To understand its limitations better, let’s take a look at several factors that are not accounted for in GDP. GDP does not account leisure time. The US GDP per capita is larger than the GDP per capita of Germany, but does this prove that the standard of living is higher in the United States? Not necessarily since it is also true that the average US worker works several hundred hours more per year more than the German worker. The calculation of GDP does not take German workers weeks of vacation into account. GDP includes what is spent on environmental protection, healthcare, and education, but it does not include actual levels of environmental cleanliness, health, and learning. GDP includes the cost of buying pollution-control equipment, but it does not address whether the air and water are actually cleaner or dirtier. GDP includes spending on medical care, but it does not address whether life expectancy or infant mortality have risen or fallen. Similarly, GDP counts’ spending on education, but it does not address directly how much of the population can read, write, or do basic mathematics. And it has so on limitations.
In the conclusion, I don’t think the standard of living should be measured by GDP. Happiness should be used instead of it, because, GDP does not describes the standard of living appropriately. Instead, happiness describes it more appropriately, and it describes the actual state.