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What are some limitations of using GDP as a measure?

Question:

What are some limitations of using GDP as a measure?

Gross domestic product:

Gross domestic product is the market value of final goods and services produced within the economy within the given time period. It is the summation of consumption, investment, government expenditure, and net exports.

Answer and Explanation:

Limitations of using GDP

1) Includes only market transactions:- It does not include the domestic work that means it includes only market transaction even these activities of domestic work have a positive impact on social welfare.

2) It does not incorporate any measure of welfare:- It is the most obvious issue such that it includes only the value of final goods and services within the given time period which does not measure the welfare of an economy.

3) It ignores externality:- The economic growth is achieved with the exploitation of renewable and non-renewable resources which is not included in the gross domestic product.


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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