Question

This week’s discussion topic is about Gross Domestic Product (GDP), Per Capita GDP and Quality of Life. GDP is the market value of all final goods and services produced in an economy in a year. Per Capita GDP is GDP/Population and shows how much of total GDP is theoretically available to each individual in the society. Per Capita GDP is the normal measure of Standard of Living when comparing nations.

Quality of Life has no standard definition. It is broader concept that attempts to embrace the multitude of variables that make people happy. There are many measures of it, but all include GDP and/or Per Capita GDP.

The ultimate question for this week is: “Is GDP a good measure of national economic well being?”

Part of answering that question is a consideration of whether economic well being for the nation is the same as quality of life for the individual? If not, how would you measure quality of life for the individual?

Answer 1

Gross Domestic Product of a nation is not a wholesome measure of the national economic well being because it considers only the market value of goods and services that are traded in the market. Some of the limitations of considering GDP as a measure of economic well being of a nation include:

a. GDP does not account for the leisure time enjoyed by people.

b. It does not include the actual environmental cleanliness, health and learning in an economy.

c. It does not cover production that is not traded in the market.

d. GDP is also silent about the level of inequality in the society.

A better measure of considering quality of life is to consider a Multi Dimensional Index that includes life expectancy, level of learning, environmental cleanliness in the economy and the GDP of the economy. This will help in better capturing the overall quality of life in an economy.