Q. 244.0( 2 Votes )

`GDP as an ind

Answer :

Gross Domestic Product (GDP) is an indicator of aggregate economic activity. It is defined as goods and services produced within the territory of the nation irrespective of nationality.

GDP is also used as an index to measure the welfare of the state. But not always it gives the exact result, it may overstate welfare or understate it.

Limitations of GDP as an index of welfare:

1. GDP only describes the value of all finished goods produced within an economy over a set period of time.

2. It does not take into account domestic work, although this work has a great impact on social welfare.

3. It does not consider income distribution. When economic output increases it does not benefit the majority of people as still, they are to be unable to purchase most of the goods.

4. GDP measures the value of all finished goods and services within an economy, it also includes products that may have negative effects on social welfare. Example: The defence equipment which has a major share in GDP, if sold and purchased within the country would have negative repercussions.

5. Economic growth usually goes hand in hand with increased exploitation of both renewable and non-renewable resources. Due to this overuse, more and more negative issues arise (e.g. pollution, overfishing) and social welfare will decrease as a result. This effect is not included in GDP at all.

Hence, economic welfare depends not only on the volume of consumption but also on the type of goods and services consumed.

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