There are many indicators that are used by economists to evaluate a country's economic performance. While there are numerous indicators available, there are some that are used more frequently than others. A commonly used indicator is gross domestic product (GDP), which is defined as the value of all goods and services produced in a specific period of time. This figure is expressed as a percentage and compared against the value of all goods and services produced during a country's history. For example, if the value of all goods and services produced during a country's history is $1 trillion, then the value of the country's GDP at any point in time would be exactly equal to this amount.
One of the most widely used indicators of economic performance is government spending. By examining government spending, economists are able to estimate how much money a country is likely to spend on various services and programs each year. This allows researchers to determine if the level of government spending is appropriate. If necessary, the government can adjust the level of its GDP level to reflect changes in the economy. If the economy is performing below target, the government may need to increase government spending, which will then in turn lead to higher rates of economic growth.
Other indicators that are often used to evaluate a country's economic performance and growth are interest rates, inflation, and real gDP growth. Unlike nominal gDP, real gDP measures actual purchasing power adjusted for inflation. Because it takes inflation into account, real gDP figures are considered a measure of overall inflation. Real gDP figures are useful when researchers are attempting to evaluate the performance of a country's economy relative to other countries.
Nominal gDP is rarely used by researchers because it does not provide an accurate depiction of the cost of living in a country. Instead, researchers generally use real gDP figures to track changes in a country's economy over time. Because it measures inflation, nominal GDP is a good measure of inflation over time. Nominal gDP is also typically used to show the cost of living across a country.
Inflation is another important indicator of market confidence. The degree to which the exchange rate of a country's currency is always consistent with other market costs is called its “inflation rating.” A higher number in the range of 2 percent above the current market cost is considered acceptable. Investors value the consistency of the exchange rate and prefer to purchase units of a country's currency when it is trading at a lower rate than the current market cost. Speculation also contributes to the level of inflation.
Economic policies and programs . . . . . . are also indicators of economic growth. Economic policies that are promoted by a country's central bank have the effect of lowering the cost of the domestic currency and increasing the amount of foreign currency available in the economy. The central bank can intervene in the market to control the level of interest rates and to ensure that the domestic economy runs smoothly. Also, the central bank can utilize its power to intervene to make its currency more convertible into other currencies. The central bank can use this power to make foreign trade easier and to encourage capital investment in the domestic economy.
The government can also play a role in economic growth. The effectiveness of a country's economic programs depends on the rule of a stable government and a vibrant economy. For example, a country with a free market economy is likely to succeed in promoting economic growth because consumers will have more purchasing power and the cost of goods and services will be driven down. Consumer protection and a strong financial system also help the economy flourish. A robust legal system protects citizens from fraud and abuse and facilitates the smooth functioning of the legal system. The creation and maintenance of sound economic programs are a key to economic growth.
These are just a few indicators of economic development. The ability of a country to successfully achieve its developmental goals relies heavily on the ability of its leaders to create the right policies and the determination of its people to move the economy forward. In both instances, economic growth is a primary goal that must be realized for long-term development.