Question

It has been reported that there has been a significant increase in miniscule airborne particles in the major capital cities of India. The particles are so small they can travel deep into a human lung, and from there into the bloodstream. There the toxins can cause respiratory illness, heart attacks and cancer. Suppose in the next five years there are sharp increases in the assembly of petrol-based vehicles and consumer demand for high-tech air purifiers and anti-pollution masks. Suppose that there is also a substantial increase in government spending on health care as more people visit the doctors due to chest infections. a) Explain why there is likely to be an increase in India’s measured GDP in this case. b) Discuss whether GDP is a ‘good’ measure of progress in this case. [4 marks]

Answer 1

a) In this case, GDP is likely to rise because of the increase in the assembly of petrol-based vehicles and increased consumer demand for high-tech air purifiers & anti-pollution masks. Also, increase in government spending on health care will result in increased GDP.

GDP can be defined as the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time.
Formula to calculate GDP:
GDP Formula = C + I + G +NX
where,
C = Consumer spending in the economy
I = Investment expenditure ,i.e., all of a country’s investment incurred for the creation of new capital assets
G = All of the country’s government spending
NX= Net country export – Net country import

So, increase in any of the above factors lead to increase in GDP. In the given case , GDP is likely to grow because of the increase in C (increased consumer demand for high-tech air purifiers and anti-pollution masks) , I (increases in the assembly of petrol-based vehicles ) and G (increase in government spending on health care).

b) GDP is not a ‘good’ measure of progress in this case due to increase in miniscule airborne particles in the major capital cities of India that can cause respiratory illness, heart attacks and cancer. GDP does not take into account the costs imposed on human health and the environment. An increasing GDP only indicates economic growth.