Question

List at least two ways that higher real GDP/person does imply greater economic well-being

List at least two ways that higher real GDP/person does imply greater economic well-being

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Answer #1

Ways due to which GDP is not a perfect measures of well being:

  • It does not capture inflation rate. As Growth rate of nominal GDP = Growth rate of real GDP + Inflation rate. Growth rate of real GDP captures the increase in purchasing capacity.
  • Degradation of Environment: We do not capture the degradation of environment due to increase in production process which means nominal growth of GDP is not sustainable development.
  • HDI: It does not take into account whether people are happy or not, whether they are literate, whether they are healthy and have a good standard of living etc.
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