Economist spend a great deal of time thinking about and forecasting future economic growth and for this G.D.P and stock market are one of the important measures.
Economic growth is measured in terms of an increase in size of nation’s economy. A broad measure of an economy’s size is it’s output. The most widely used measure of output is G.D.P or Gross Domestic Product ,country seeks to increase their G.D.P in order to increase their standard of living.
G.D.P growth rate is determined by exports, government spendings, retail expenditure and inventory levels. G.D.P growth rates are one of the most important indicator reflecting a nations economic health. If there is growth in G.D.P, there will be growth in personal incomes and jobs.
Now switching over to stock market. Most of us still remain unaware of the term stock market, in spite of the fact that we come across it several times . Stock market or Equity market is a public market for trading of company stock and derivatives at agreed price, these are securities listed on stock exchange as well as those traded only privately.
Recent evidences suggest that a stock market can give a boost to economic development . India can be considered as one such strong examples. Stock market may affect economic activity through creation of liquidity. Liquid stock market makes investment less risky and more attractive because they allow savers to acquire assets on equity and to sell quickly and cheaply. Most importantly citizens are always advised to invest more in stock market during inflation as it backs your money against fall in value or depreciation. Stock market facilitates long term more profitable investment and enhance prospects for long term economic growth.
Along with the decrease in the G.D.P growth rate business will stop new recruitment and investing in new purchase till economy improves , but this further reduces G.D.P and there will be less money with the consumers to purchase. The negative G.D.P growth rate clearly indicated the state of recession i.e, the lowest portion of business cycle in U.S.
A more developed equity market attract the foreign capital i.e. essential for development especially in LIC’s and LDC’s.
stock market and G.D.P. are used to compare the size and relative growth rate of the economy through the world
G.D.P and stock market are interlinked too. Investors look at G.D.P growth to see if economy is changing rapidly so they can adjust their asset allocation. Investors compare the G.D.P to see where the best opportunities are.
When the senator Robert Kennedy was running for president in 1968, he gave moving critique for such economic measure:
They does not allow for health of our children , the quality of their education, or joy of their play.It does not include the beauty of our poetry or the integrity of our public officials.It can tell us everything about America except why we are proud to be Americans.
much of what Mr. Kennedy said was correct , but why do we care about GDP?
the answer is that a large G.D.P does in fact help us to lead a good life. G.D.P does not measure health of our children , but nation with large G.D.P can afford better healthcare for children. G.D.P does not measure quality of their education, but nation with large G.D.P can afford better educational systems. G.D.P does not measure beauty of our poetry, but nation with large G.D.P can afford to teach more citizen to read and enjoy poetry.
In short G.D.P and stock market do not directly measure those things that make life worthwhile, but they do measure our ability to obtain many inputs that help make our life worthwhile.