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| 1. |
Write down some of the limitations of using GDP as an index of welfare of a country. |
| Answer» Solution :Gross domestic product is the value of all good and services produced in a nation.It is being used by countries since 1930s to described the macroeconomic health ofa country. But its efficacy to be a parameter of development is coming underattacks by many economists and institutions all over the world. Its limitations asan index of welfare of a country can be summarised as:- It is the sum product of values of all good and services which can witness agrowth rate due to price rise.- Social indicators like level of education, health and position of women insociety are not part of GDP.- The growth may result from the growth of few and there can be an increasing GAPBETWEEN poor and rich.- Climatic factors are not included in GDP. The unsustainable exploitation mayresult in growth of GDP but can be dangerous for future generation.Level of freedom enjoyed by people and their personal well being andsatisfaction are not added to GDP.- As much of unorganised sector is beyond the calculation of GDP, it can not beregarded as representating the true nature of health of an economy.GDP is considered as an indicator of growth and not the development, which differsfrom growth in terms of quality of LIFE. GDP measures quantity and not quality.Also EFFECTS on different section can not be discerned by looking at GDP. This thereason why many institutions are coming with different indexes to measure thequality of life in a country. Although none of them can be considered aspresenting the whole PICTURE but they are much closer to the real situation ofsociety than GDP. | |