Question

Discuss the limitations of GDP as a measurement tool.

Answer 1

Some limitations of the GDP method includes

1. The exclusion of non-market transactions
2. The failure to account for the income inequality in society
3. It treats the replacement of depreciated capital the same as creation of new capital
4. It fails to indicate whether a nation's growth is sustainable or not

Explanation:

The main reason why GDP is still used is that there is no better way to measure a country's economic health. If you decided to use employment instead of GDP, country could be having 100% employment but still all its people are employed as street sweepers. This leaves GDP as the only method that gives a better approximation of the economy's status