Question

dicuss the limitations of GDP as measurement tool

Answer 1

LIMITATION OF GDP AS MEASUREMENT TOOL -

1) GDP has excluded the non market transaction.It included only market transactions and ignores the domestic or voluntary work which have a positive impact on social welfare.

2) GDP has not been able to explain that nation's rate of growth is sustainable or not.

3) GDP has treated the depriciated capital replacement same as the creation of new capital.

4) GDP fails to account for wealth distribution as it measures all finished goods produced within an econoy over a period of time.

5) GDP ignores externalities.With economic growth exploitation of renewable and non renewable resorces happens due to which negative externalities develop which has been ignored by GDP.

6) GDP ignores distribution of income as there is high degree of income ineqaulity when it comes to income distribution.