Discuss Two Problems of Comparing the Economics Growth of the Uk and Developing Economies Using Gdp as a Measure.

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GDP has been a common indicator to compare how a country has been faring overall. However, there are many problems associated with GDP as a measure of comparison which may undermine its importance. In every economy, there are some transactions that go unrecorded. This is because of the activities informal nature. This is especially true in developing nations since many of its activities are traded without the exchange of money. For example, household producing food from their own backyard for their own consumption does not require exchange of money. This type of activities will not be recorded in GDP even though economic activity has taken place. Thus the figures of GDP change for developing countries in Figure 2 may not reflect all the production that has taken place in the economy. Another problem with GDP as a mean of comparison is its nature of only accounting quantitatively. It ignores the importance of quality of life people are experiencing. For an example, a highly productive country with relatively high GDP may face high externalities (deforestation, pollution, extinction of species). These externalities may cause serious problem for future generations to come. It can be argued that quality of people’s lives depends on more things than simply the material resources that are available. Another common problem with using GDP as a way to compare is the problem with exchange rates. GDP is calculated initially in terms of local currencies and then later it is converted into US dollar using official rates. The conversion into US dollar itself is a problem since the rates used are likely to be influenced by government intervention. This is especially true in developing economies where the currencies are normally pegged to another currency such as the US dollars. In this circumstance the rate will not reflect the relative purchasing power of incomes of these
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