Question

Many people interpret an increase in a nation's GDP as if it demonstrates a rise in the "material" standard of living of the nation. Give at least three problems of GDP to explain why a rise in a nation's GDP does not necessarily mean an increase in the "material welfare" of the concerned nation's individuals. Include your reasoning in your essay.

Limit your discussion to "material welfare". Robert Kennedy criticized GDP (precisely speaking, he was referring to GNP which was more widely used than GDP at the time of this speech) saying that it does not measure "the health of our children, the quality of their education or the joy of their play", "the beauty of our poetry or the strength of our marriage, the intelligence of our public debate", etc. This criticism is well known and often cited when people criticize GDP. However, GDP is not designed to measure these things in the first place.

Answer 1

Market analysts regularly utilize genuine national wage to think about the ways of life after some time (intertemporal correlation) and crosswise over space (worldwide examination). The way of life alludes to the material and non-material welfare of the general population. An expansion in national wage may prompt an ascent in the way of life. At the point when firms increment generation which will prompt an expansion in national yield, they will utilize more factor contributions from family units and thus will pay them more factor pay which will prompt an increment in national wage. Consequently, an expansion in national pay shows an expansion in national yield. An expansion in national yield may prompt an increment in the measure of merchandise and ventures accessible for utilization. On the off chance that this happens, the material way of life will rise. Moreover, when national yield rises, the interest for work in the economy will rise which will prompt a fall in joblessness? At the point when this happens, the assurance and fearlessness of the specialists who were beforehand jobless however have discovered an occupation may rise which may enhance their psychological wellness and this may prompt an ascent in their non-material ways of life. Also, the psychological well-being of the specialists who were already utilized and have stayed utilized may enhance as they may encounter a higher feeling of employer stability and this may prompt an ascent in their non-material ways of life. In any case, because of a few reasons, this isn't really valid. In this way, issues emerge when national wage is utilized to analyze the way of life after some time and crosswise over space.

Intertemporal (Comparison Over Time)

An expansion in national yield may not prompt an ascent in the way of life since it may not prompt an increment in the measure of merchandise and ventures accessible for utilization because of a few reasons. Initially, the measure of merchandise and ventures accessible for utilization may not increment in light of the fact that the measure of non-advertised products and enterprises may diminish. The estimation of non-showcased merchandise and ventures is excluded in national yield. For instance, when a pastry specialist prepares a pie, the estimation of the pie is incorporated into national yield. Be that as it may, when a housewife heats a pie, it isn't. At the point when joblessness falls because of an expansion in national yield, individuals will have less time to take part in the creation of merchandise and enterprises in the family unit economy which will prompt a reduction in the measure of non-showcased products and ventures.

Worldwide (Comparison across Space)

In the event that the national yield of economy An is higher than that of economy B, the way of life in economy A may not be higher on the grounds that the measure of products and enterprises accessible for utilization may not be bigger because of a few reasons.

To start with, the measure of merchandise and enterprises accessible for utilization in economy A may not be bigger than that in economy B in light of the fact that the measure of non-advertised products and ventures in economy A might be littler. The estimation of non-advertised merchandise and ventures is excluded in national yield. For instance, when a pastry specialist prepares a pie, the estimation of the pie is incorporated into national yield. In any case, when a housewife prepares a pie, it isn't. The oversight of the estimation of non-promoted products and enterprises from national yield downplays the material way of life as estimated by national yield. Second, the measure of merchandise and ventures accessible for utilization in economy A may not be bigger than that in economy B on the grounds that the measure of undeclared products and enterprises in the underground economy in economy A might be littler. The estimation of undeclared products and enterprises in the underground economy is excluded in national yield. These products and ventures are not announced on the grounds that they might be unlawful, for example, medications and prostitution, or with the end goal of tax avoidance. For instance, individuals carry tobacco and liquor to sidestep charge. The oversight of the estimation of undeclared merchandise and ventures in the underground economy from national yield downplays the material way of life as estimated by national yield.

Purchasing Power Parity

One issue with the utilization of national wage to think about the ways of life in various economies is that the national salary of an economy is estimated in the neighborhood money. In principle, this issue can be overwhelmed by changing over the national wage of every economy in the nearby cash to a typical money, for example, the U.S. dollar utilizing the market swapping scale. Notwithstanding, utilizing the market swapping scale as a transformation factor won't consider the distinctions in the expenses of living in various economies. Despite the fact that the World Bank converts the national livelihoods of various economies in their nearby monetary standards to the U.S. dollar utilizing the market swapping scale, the reason for existing is to analyze the sizes of the economies as opposed to the ways of life.

The World Bank, be that as it may, likewise change over the national salaries of various economies in their neighborhood monetary forms to the U.S. dollar utilizing the buying power equality (PPP) swapping scale with the reason for looking at the ways of life. The obtaining influence equality (PPP) conversion scale is the swapping scale which permits the measure of cash that is required to buy a crate of merchandise and enterprises in a single economy to buy a similar bushel of products and ventures in another economy in the wake of trading it into the money of the other economy. Assume that S$200 is required to buy a crate of merchandise and ventures in Singapore. Additionally assume that US$100 is required to buy a similar crate of merchandise and ventures in the United States. For this situation, the acquiring power equality (PPP) swapping scale of the U.S. dollar against the Singapore dollar will be S$2/US$1. As the acquiring power equality (PPP) swapping scale considers the distinctions in the expenses of living in various economies, it is a superior change factor to compare the ways of life in various economies. Obviously, we ought to likewise consider the distinctions in the sizes of the populace and a large group of different components.