Is gross domestic product a reliable indicator of a nation's economic health?

Question:

Is gross domestic product a reliable indicator of a nation's economic health?

Gross Domestic Product

The Gross Domestic Product (GDP) measures the money value of all the final products and services procured within the boundaries of the country in a given year. The value of national income can also be obtained by including net factor income from abroad. GDP measures the well being of the country. Besides GDP, some other economic indicators includes Human development index (HDI), gross happiness index.

Answer and Explanation:

GDP is a measure of economic well being of the country but it also has shortcomings such as-

1. The GDP does not include the non market or non monetary transactions such as time and value efforts in cooking food for self, gardening in the own garden, cleaning the utensils, love and care taken by a mother for her family

2. Illegal activities are not involved in calculating gross domestic product. Some of the illegal activities involved robbery, gambling, smuggling, fraud, prostitution, and so on. The legal activities such as giving home tuition without any registered coaching centre are also not included in GDP.

3. GDP includes quantitative transactions and excludes qualitative changes in the economy such as change in technology and quality of the products.

4. The GDP does not include the happiness or the pleasure of people of the nation.

5. GDP does not consider environmental degradation.

Therefore, due to the above discussed shortcomings, the GDP is not a reliable indicator of a nation's well being.


Learn more about this topic:

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Gross Domestic Product: Definition and Components

from Economics 102: Macroeconomics

Chapter 4 / Lesson 3
58K

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