What Are the Different Methods for Measuring Economic Performance?

Measuring economic performance allows a nation to determine the state of its business cycle. Nations who rely more on a centralized or command economy may use performance measures to determine if more action is necessary to sustain the current economic environment. Common economic indicators include gross domestic product (GDP), inflation, and exports. Though these are just a few indicators for measuring economic performance, they are among the most commonly reported. Economic indicators help nations track economic performance over long periods of time as they are key to creating performance trends.

GDP represents the market value of goods produced by a nation for a specific time. This aggregate figure is perhaps the most common way for measuring economic performance. Three parts make up GDP: consumer spending, business investment, and government spending. Economists create a single GDP figure to represent growth or contraction and then individual percentages for each piece of GDP. High GDP growth percentages are best as this typically indicates growth in the aggregate economy.

Inflation is also a crucial piece of information for measuring economic performance. Inflation occurs when too many dollars chase too few goods. Poor money supply regulations are a way governments can increase inflation unnaturally. For example, flooding the market with printed fiat money creates inflation; low interest rates and bank holdback percentages can also flood cash into the market. Inflation can retard economic performance as the purchasing power of dollars reduce, making it harder for consumers to purchase the same amount of goods for the same amount of dollars.

Exports can be a controversial method for measuring economic performance. Economists may believe high exports and low imports create a strong economy, while other economists believe the opposite is true. Exports as an economic performance measurement indicates a country produces copious amounts of goods inside its borders. The demand for these goods is high due to purchases from outside countries. Economists can use export measurement to determine the strength of a country’s manufacturing and production segments.

Economic performance is an important measure because it looks at a nation’s wealth. In most cases, economic wealth is a true figure that represents growth. Though some countries may attempt to fudge economic numbers, it is often easy to see when they do not perform well. Measuring economic performance also helps a nation determine where it performs well and where it does not. Comparison to other countries can help a nation decide how to improve its economy through alternate methods.