Question

1. Define Gross Domestic Product (GDP) and discuss how it is used as a measure of living standard and the limitations of its use.

2. What other indicators (list at least 3) can be used to supplement GDP as a measure of welfare?  

3. What is the difference between a final good and an intermediate good ?

4. Why some countries grow faster that others?

5. Discuss the factors that contribute to economic growth.

Answer 1

Answer 1-GDP is the monetary value of all final goods and services produced in a country during a given year. GDP can be nominal or real. Nominal GDP is the monetary value of goods and services not adjusted for inflation but real GDP is adjested for inflation and reflects the actual purchasing power on people.

It is used as a measure of standard of living. A high GDP or high GDP growth rate indicates rapid economic growth, increased standard of living, increased per capita income, low inequality etc. But, many economist consider that GDP is not the appropriate measure of a country's well being. Because, GDP is a quantitative measure and it excludes various qualitative or social factors/indicators that are considered to be a measure of well being. For example, GDP do not include inequality in income distribution, unemployment rate, health quality in a country, educational standards or goods and services in the informal sector, services of unpaid mothers, maids, baby sitters house wives, leisure foregone by workers to produce extra unit of output etc. But, in order to reflect the actual quality of life, all these measures be it health, education, employment, leisure etc are important.