Question

limitations of using GDP as a measure of wellbeing of citizens in an economy (national income)

Answer 1

The first limitation is that GDP is an aggregate measure of the economy that does not explain the quality of life of the people. For example, China and India has higher GDP than Switzerland, but Switzerland has superior facilities, per capital income, lesser income divide and more happiness than India and China. So, Switzerland boasts superior quality of life. The second limitation is that GDP does not show the income divide in the economy. For example, most of the resources in the economy, can be with few people in the country. Hence, per capital income measure based on GDP or national income is not so relevant. Hence, per capital income, cannot ensure that people are earning that income and buying happiness through resources. The third limitation is that GDP is about official and reported declaration of final output. It does not consider undercover economy and people working in that economy. It is not a correct measure of income earned and happiness achieved by people who work in undercover economy. The fourth limitation is, not focusing on poverty level by the GDP of the economy.