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Gross Domestic Product (GDP) is the broadest measure of output for an economy. However, GDP does not perfectly measure well-being of a nation and its citizens’ welfare. Discuss what GDP is and what it measures? Discuss what the shortcomings (limitations) of GDP as a measure of well-being and welfare of a nation are?
Gross Domestic Product (GDP) is the monetary value of all finished goods and services produced within a country in a given period. It’s one of the most commonly used measures for assessing economic output and performance. The GDP includes private consumption expenditure, government spending, investments into capital goods, net exports and inventory changes from quarter to quarter.
On one hand, GDP does provide an overall measure for economic growth which can allow for comparison between countries or regions. A growing economy indicates that incomes are increasing as well as providing more jobs opportunities. This enables citizens to have higher standards of living due to increased income levels and access to better goods and services.
However, there are limitations with using GDP alone as a measure of welfare and well-being of a nation’s population; this is because it only takes into account monetary exchanges while ignoring wider social issues such as inequality or environmental sustainability. For example: if an increase in GDP was driven by an influx of tourism dollars but at the same time caused increased pollution or congestion then this would not be reflected in terms of broader welfare gains since it has been unable to capture those negative externalities associated with tourism activity. Additionally, GDP does not factor in other areas which can affect well-being such as health outcomes or life satisfaction – these areas must be looked at separately from measuring economic output alone if we wish to properly gauge how our societies are doing from both a financial and non-financial perspective.