Question

Although GDP is most widely used macroeconomic leading indicator to measure a national economy’s health, what are its weaknesses?

Answer 1

GDP does not include non market activities and several important components such as the work done by the housewives, and members of the family for their household including raising the children. GDP does not indicate how the total value of final goods and services is distributed among the population which is actually indicated by the GDP per capita. There is no indication of social and economic inequality from the GDP measure which indicates that the economic tool is enable to indicate the quality of life. it also fails to consider the impact of economic activities on the environment and the degradation of the environment. Due to these reasons GDP is not considered as an accurate welfare measure.