Gdp and Its Affects Essay

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ASSIGNMENT #2: CRTITICISM ON GDP AS A MEASURE OF ECONOMIC GROWTH & ITS ALTERNATIVE MEASURES SUBMITTED BY: MAHA FURQAN- APRIL 15, 2014 INTRODUCTION: Economic growth is defined as an increase in the market value of goods and services produced by an economy over time. It is measured as the rate of increase in real GDP. Whereas, GDP measures the market value of all final goods and services produced within a given country during a specific period of time. Formula is: GDP= C + Ig + G+ Xn Where, C is personal consumption expenditure Ig is Gross Private Domestic Investment G is Government Purchases Xn is Net exports (exports-imports) CRITICISM ON GDP AS MEASURE OF ECONOMIC GROWTH Many economists have criticized on GDP as a measure of economic growth and say that it consist of many flaws. To determine the country’s prosperity it not only requires measuring its GDP but also requires examining various economic, social and environmental aspects that have a direct impact on the well-being of people living in the society. 1. GDP does not take into account the sustainability of future GDP: A high GDP not always represent a sound economy. It might show that the country is progressing well at present but might not in future. GDP does not measure the long-term sustainability of the economic growth rate. A country might be currently under-utilizing or over-utilizing its resources, may have low saving and investment rate and higher consumption pattern, hence only reflecting a high number of GDP. 2. GDP excludes non-market activities: GDP in its calculation only counts the value of the monetary transactions being taken place in which output or resources are traded for money. Hence, it understates the country’s total output because it does not count the unpaid activities like house-working mothers, volunteer work conducted by students like picking
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