Gross domestic product (GDP) refers to the total value of all goods and services which are produced within the borders of a country or state within a particular period of time, often a year. The components that make up GDP are ; individual’s consumption expenditure (C), business investments (I), government spending (G), exports (X), and imports (M) (Greenlaw et al., 2018). Therefore, GDP is made up of C + I + G + (X - M) . It is therefore imperative that GDP is a vital indicator when measuring the performance of an economy. When the GDP of a country decreases, the economy shrinks and may result in an economic recession (Greenlaw et al., 2018). If the economic shrinking prolongs to years, there will be resultant economic depression as witnessed in the United States during the Great Depression that occurred in the 1930s.
The impact of GDP is felt on an individual expenditure, investment and also job growth and opportunities. When there is an increase in a country’s GDP, it triggers more investments resulting in firms employing more people since they have more resources to pay salaries (Mandel & Liebens, 2019). Higher wages lead to an increase in the purchasing power of employees which results in higher standards of living. When the GDP growth is negative, it results in to layoffs and unemployment due decline in investment and government spending.
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To recapitulate, unemployment leads to the decline in the GDP growth which results in a contracted economy. For example, when a person loses his or her employment, it leads to loss of income thus resulting to decrease in consumption of good and services in an economy due to low purchasing power. Also, unemployment results in loss of tax revenues (Nevile, 2016). A decline of revenue results in reduced government spending on provision of quality public goods and services such as infrastructure that include roads, health facilities amongst others.
References
Greenlaw, S. A., Shapiro, D., & Taylor, T. (2018). Principles of Economics-2e: OpenStax.
Mandel, C., & Liebens, P. (2019). The Relationship between GDP and Unemployment Rate in the US. International Journal of Business and Social Science , 10 (4).
Nevile, J. W. (2016). Policies to minimise the costs of unemployment. In Post-Keynesian Essays from Down Under Volume III: Essays on Ethics, Social Justice and Economics (pp. 45-66). Palgrave Macmillan, London.
