Question

Discuss how one may misinterpret the concept of Gross Domestic Product..

Answer 1

The reason why gross domestic product is not able to detect the actual picture of the economy is that it can be easily misinterpreted. Gross Domestic Product basically computes the final value of all the goods and services produced by the domestic firms within the national boundaries. It does not indicate whether this production is actually distributed equally among all the people of the nation. This indicates that is GDP is higher one cannot claim that the economy is growing and becoming a prosperous one. But politicians often misinterpret GDP by saying that increase in the level of GDP implies a higher level of standards of Living. The standards of Living are improved when there is an increase in the real GDP per capita and not only in GDP because this will measure how the production done by the economy is actually reaching out towards its people.