Answer to Question #108610 in Financial Math for david

Question

is GDP a good measure of economic output and welfare?Explain

Answer 1

There are two types of variables in the economy: variable flows (GDP, Taxes, budget deficit), calculated over a period of time, usually over a year, and variable stocks (government debt, foreign exchange reserves, capital), calculated at a point in time.

And if GDP, like GDP per capita, is a flow quantity, that is, a value describing stocks. It is called National Wealth.

They tried to count national wealth since the 17th century, but so far there are no good and reliable methods for calculating it. Now, national wealth is considered within the framework of the System of National Accounts along with GDP and many other indicators, but it does not become common because of problems with calculation. Therefore, at present, economists of all countries use precisely GDP and GDP per capita, as a relatively qualitatively calculated indicator that provides an adequate comparison of the current state of countries among themselves. GDP per capita is not the best indicator, not a secret for economists.“GDP measures everything except what it’s worth living for,” Senator Robert Kennedy once said.

GDP is one of the important economic indicators, and not an integral characteristic of the level of development of the state, and even less so as a barometer of the standard of living of the population.

Yes, GDP may rise, but prices in the country may rise, which reduces national wealth, depreciating money.

Economic growth, as a result of which people's lives do not improve, is meaningless.

Therefore, economists are still looking for this single indicator or a system of indicators that will reflect the real picture in a country with a standard of living.

Currently, the following indicators have appeared: Human Developmet Index, Social Progress Index, Legatum prosperity index, which take into account the level of education and life expectancy.