Macroeconomics is the study of economics that deals with broader parts of the economy. This implies that macroeconomics studies the whole country’s economic condition.
This study goes for the definite methods of measuring the country’s annual value of goods, products, and services. And this is where terms like Gross Domestic Product (GDP) and Genuine Progressive Indicator (GPI) come in.
Both these terms help measure and determine the economic condition of a country.
GDP vs GPI
The difference between GDP and GPI is that while GDP considers only the economic and financial advancements and depressions, GPI considers both these advancements and the negative impacts of these advancements. Thus, unlike GPI, GDP doesn’t consider the social and economic negative impacts of technology and advancement, such as increased crimes and ozone layer depletion.
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GDP represents the economy of the nation and thus, stands like a parameter for comparison when the economic conditions of two countries are measured.
It refers to the accumulated monetary value of goods manufactured in a particular country domain in a particular period.
Three approaches can be taken for the calculation of GDP; production approach, expenditure approach, and the income approach.
GPI, the real indicator of the nation’s progress, takes into account all the parameters of GDP and the negative impacts of these economic advancements.
It actually measures the nation’s health by taking into account all financial, social and environmental factors. However, some people consider it a subjective concept due to its widespread definition and multiple interpretations.
|Parameters Of Comparison||GDP||GPI|
|Definition||GDP is the total money value-added and created to an economy. Here, the value-added means the value of all the finished goods, products, and services produced in the nation’s geographical territory.||GPI is a metric used for measuring the growth of a nation’s economy. It is often said to be the alternative metric to the Gross Domestic Product (GDP).|
|Formula||The formula for GDP calculation goes like GDP = C + G + I + NX.||The calculation of GPI is done using the formula: GPI = Cadj + G + W – D – S – E – N.|
|Application||GDP measures and diagnoses the health of the economy of a country. Economists mainly use GDP to be decisive about whether the economy is growing or experiencing a slowdown or recession.||As an alternative to GDP, GPI uses the parameter of GDP to show the negative effects or influence of economic activity.|
|Derivation||There are three methods present for the derivation of GDP. They are the income method, expenditure method, and product method.||GPI is derived and analyzed by the standard of living of a person. That’s what shows the nation’s economic growth.|
|Results||With GDP, economists get a broader picture of where the economy has been in a year or a quarter and what will be the future scenario.||But GPI is the hybrid of GDP, which goes through every corner of the economy to point out the malware or virus defecting the economy.|
What is GDP?
The total or accumulated market value of all the mass products and services curated and sold within the country’s borders within a definite time is known as GDP (Gross Domestic Product).
The country’s economic health represented by the domestic lump production is represented as the GDP. The country’s economic overview in a specific time depicting the size and increase in the size of the economy refers to the GDP.
Different economies and countries have different methods and time spans for calculating GDP. However, most countries calculate GDP on a quarterly and annual basis.
Basically, there are 3 methods involving 3 different parameters for GDP calculation. These three parameters include production, income, expenditure.
The GDP includes all exports, investments, consumption, outlays, construction costs, and other expenses both from public and private spheres. On the other hand, imports are counted on the negative side of GDP.
When the GDP of a nation rises, the situation of trade surplus arises.
Such a situation implies when the revenue generated from the sale of domestic products in foreign countries exceeds the costs of foreign products brought by domestic people.
If the situation reverses, the situation of trade deficit arises. GDP can be classified into various types: Nominal GDP, GDP Per Capita, GDP Growth Rate, GDP Purchasing Power Parity, and Real GDP.
What is GPI?
Besides the positive sides of GDP, there are some economically negative sides of GDP which lead to serious consequences such as resource depletion, ozone depletion, and others.
These negative impacts of the growing economy are not included in GDP calculation.
The concept of GPI emerges here. GPI, an alternative method of measurement to GDP, exactly represents the economy’s growth while taking into account the negative impacts of the growing economy.
GPI (Genuine Progress Indicator) is considered a better tool for the measurement of the country’s economic health as it views national health from every possible perspective.
GPI takes into account the growth of green economics. GPI also considers and upholds the value of charitable contributions and activities.
Created in 1995 under the guidance of Jonathan Rowe and Ted Halstead, GPI has 26 parameters or indicators which can be shortly categorised into 3 groups.
These three groups are namely; social, environmental, and economic. However, there are downsides to GPI too. Since then, GPI has been the economic health measurement tool for Canada and the USA.
The definition of GPI includes many parameters. This widespread definition leads to subjectivity, making it difficult to be considered a parameter for comparison.
Main Differences Between GDP and GPI
- GDP can be understood as the aggregate money created to an economy. Here, the value of all the finished goods, products, and services produced in the nation’s geographical territory are taken into consideration. But, GPI refers to the metric used to measure the growth of a nation’s economy.
- The formula for GDP calculation is GDP = C + G + I + NX. On the other hand, the formula for GPI goes like: GPI = Cadj + G + W – D – S – E – N.
- GDP diagnoses the health of the economy of a country in terms of finances. GDP tells whether the economy is growing or experiencing a slowdown or recession. But, GPI uses the parameter of GDP to show the negative effects or influence of economic activity. GPI reflects the overall health of a nation in comparison to the economic health.
- The three methods for the derivation of GDP are income method, expenditure method, and product method. Whereas GPI is derived from the standard of living of a person.
- GDP depicts a broader picture of where the economy has been in a year or a quarter and what will be the future scenario. But, GPI goes through every corner of the economy thereby reflecting its positive and negative points.
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.