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It only sums up the outputs of production and does not include intermediary goods and those consumed households (Tyson and Lund 2014). As a result, it does not measure the social welfare and their lifestyles. A country may have high GDPs annually, but there are still cases of increased poverty among its citizens. Additionally, GDP does not include incomes from black markets and other nonmarket activities that are sources of employments and better economic welfares. Lack of including economic activities that directly contribute to an individuals welfare has become a major setback especially in the United States (Tyson and Lund 2014). GDP includes gross incomes and does not account for economic factors such as depreciating capital stocks.
On the other hand, solutions have been introduced to modify GDP as a measure of economic welfare. They include the introduction of indexes in the environmental and personal welfare sectors. The Human Development Index (HDI) and Environmental Sustainability Index (ESI) have been introduced to provide for omissions that the GDP does not cater for in the economy. Since GDP does not account for social welfare, the HDI can be used as a measure of individual qualities of life and later be included in the GDPs final tally. GDP can also be modified by including other measures of income such as the Gross National
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It can be regarded as the size of the economy. More often than not, GDP is usually expressed as a comparison of the earlier quarters or year. For example, if he year to year GDP is up to 4 % this is then perceived to mean that the economy grew by 4% over the last year.
Theoretically, it is the amount of National Income (NI) and it is produced within a country. It includes all the private as well as public consumptions occurred within the given territory for a defined period of time, viz., yearly, quarterly or monthly. It signifies the current state of any economy and is commonly measured on a yearly basis (Haggart, 2000).
Over the last few years, although there are quarterly fluctuations, there is a general downward GDP trend. Looking at annual real GDP, one can see a downward trend from 2.7% in 2006 to a slightly lower 2.1% in 2007 to the almost flat growth of .4% in 2008.
Calculating development in terms of per capita GDP leads to a distorted view of the developmental status of nations and their populations. As a case in point, one may refer to the fact that according to this statistical measure, Qatar, Kuwait and the United Arab Emirates rank as the second, fourth and fifth most developed nations in the world, and Equatorial Guinea as the ninth (IMF, 2008).
Gross domestic product can be defined as a measure of the market value of all final goods and services produced by a country in a given time frame. It has always been considered an important indicator of economic activity. The GDP is estimated by three distinct theoretical approaches, these are GDP from the output or production then the GDP from the income and finally the GDP from the expenditure.
According to the report the way income is distributed in the economy is a measure that can be used to gauge the quality of life, because that shows how many people receive what percentage of the income that is being generated within the economy and how many people receive an income that is below the average.