Question

Why is it more difficult to get an accurate assessment of GDP, the inflation rate, and the unemployment rate in less developed countries in comparison to developed countries? Please explain for each variable

Answer 1

GDP refers to gross domestic product and is the money value of all goods and services produced in an economy.In measuring GDP accurate data may not be available in less developed countries and this may lead to overestimation on underestimation of the GDP.It is difficult to record the activities of the parallel economy.There are many activities which are not reported in national income statistics .Again subsistence activities , domestic activities like cleaning, cooking etc are not taken into consideration in developing countries.Geographical inaccessibility to certain areas ,makes it difficult to collect data from such areas.

Inflation is the sustained increase in price level during  a period of time.It is difficult to measure inflation in less developed countries because of changes in the quality of goods and services included in the index.This makes comparing goods over time difficult . As for eg it is difficult to compare the computer which was produced 10 years ago with the computer which is  produced now.Again special offers make it possible to purchase a product for a lower price than it is reflected in the index.There may be quick chnges in consumer taste and change in the consumption pattern.Since weighting is based on 'average' spending patterns , the more the person moves away from the 'avarage' ,the official inflation rate will become less meaningful.

The unemployment rate is the percentage of the labor force that is unemployed.Measuring unemployment accurately becomes difficult because of imperfect knowledge ,as all unemployment cases in less developed countries are not recorded.In order to get unemployment benefit , many individuals work but do not disclose it.There is a problem of understating employment of women.The unemployment surveys that are carried out are not accurate.