Answer to Question #307474 in Macroeconomics for geoffroy

Question

 How can one measure a country’s GDP? What are its limitations as a measure of wellbeing? Do we have any alternative measurements of „wellbeing“?

Answer 1

GDP is measured by taking the quantities of all goods and services produced, multiplying them by their prices, and summing the total. GDP can be measured either by the sum of what is purchased in the economy or by what is produced. Demand can be divided into consumption, investment, government, exports, and imports.

Some of the limitations encountered are;

1. The exclusion of non-market transactions.
2. The failure to account for or represent the degree of income inequality in society.
3. The failure to indicate whether the nation's rate of growth is sustainable or not.

The alternatives to measure well-being include;

1. Incorporating the negative effects of income inequality on welfare
2. Adding positive elements not considered in GDP, such as the benefits of household work, volunteer work, and higher education; and subtracting environmental costs and social costs like the costs of crime, unemployment,