[SOLVED] Gross Domestic Product
Im trying to study for my Economics course and I need some help to understand this question.
1.Respond to the following in a minimum of 175 words:
Discuss the limitations of GDP as a measurement tool.
2. Respond to the following classmate:
There are many limitations of the Gross Domestic Products (GDP) in regards to measuring a countries goods and services that are produced within a years time. GDP does not measure the Gini index or the inequality index which is how wealth is distributed in the economy. It is not the best way to measure the growth of a country because you are not able to measure the black market. GDP is only an imperfect measure of the quality of life and happiness of people. Many non-economic factors also influence the quality of life and happiness. This is the reason Bhutan has moved to calculative happiness index rather than GDP. GDP also does not calculate the environments pollution and the quality of living which can be a measure of welfare. Illegal activities contribute to a big piece of a country’s income such as selling drugs and does not take account for the income. I think there are limitations with this tool to measure the health of a country’s economy but I realize how important it is to have a tool to rank the economies of nations by their GDP number.
3. Respond to the following classmates:
Gross Domestic Product helps indicate performances in the nation. One thing that it does is helps makes sense of how much a nation has to buy over time. It also helps determine a nations standard of living. Although Gross Domestic Product works to perform such task, GDP also had limitations. While using Gross Domestic product you cannot measure every good or every sale. One must be sure to pay attention to the durable good, non durable good, non market activities, price levels, depreciation and etc. One cannot measure GDP if it happened for self consumption. Negative externality is also a limit of GDP, which occurs when a cost is taken in by a third party because of an economic transaction. Household production also is a limitation in Gross Domestic Product, some including providing childcare, preparing meals and completing laundry. Underground Production is also a limitation. All underground production is hidden from the government, which individual do to avoid paying taxes. Health and life expectancy is also a limitation in measuring the standards of living of a nation.