Answer to Question #80674 in Macroeconomics for gerald

Question

Define Gross Domestic Product (GDP) and discuss the problems associated with GDP as a measure of an economy`s total production

Answer 1

Gross domestic product refers to the value of the finished products and services at a given time in a country. As a measure of the nation’s economy, it has some shortcomings in the determination of the total production in the country’s economy. First, it includes government expenditure together with other contacts which potentially lessen the GDP’s usefulness in the measuring of economic growth. This happens because the government spending does not benefit the social welfare as such. Equally, the GDP significantly fails to discount the activities that do not raise people’s well-being directly such as military expenditure. The two reasons accurately capture why the GDP is not a measure of economic growth.