Question

Discuss the limitations of GDP as a measurement tool. Why do we still use it if is so flawed?

Answer 1

GDP is a useful indicator of the economic performance of a country, and is the measure of well-being that is most used. However, it has some important limitations, including: the exclusion of non-market transactions The failure to account for or represent the degree of income inequality in society The failure to show whether or not the nation's growth rate is sustainable

The failure to account for the costs of negative externalities placed on human health and the environment resulting from the development or use of the nation's outputTreating the replacement of depreciated capital the same as the creation of new capital

Gross domestic product measures the performance of a country's economy. This reflects the amount of all goods and services produced within a country's borders over a specific period of time. Economists can use GDP to assess whether an economy is growing or facing a decline.