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GDP - Assignment Example

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This is because GDP is the basic measure of the society’s economic well-being, and a better measure of the US citizens’ economic well-being would be the GDP per person. A…
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Gross Domestic Product (GDP) Question In measuring the well-being of its citizens, countries often use Gross Domestic Product (GDP). This is because GDP is the basic measure of the society’s economic well-being, and a better measure of the US citizens’ economic well-being would be the GDP per person. A substantially higher real GDP today than it was 60 years ago shows that the US has been capable of producing a greater output of goods and services in the present than in the past, given that the GDP is in real terms (Mankiw, 2007). Some of the increases in the real GDP can be attributed to the increased population growth rate.
Subsequently, assuming an increase in the real GDP per person, the rise in the real national GDP would indicate that the standards of living for the citizens has risen too. This is in consideration of the ownership of material things such as shelter, food and clothing which are fundamental to wellbeing. The increased standard of living could also be as a result of the enhanced security, access to safe water, justice, access to medical care and a safe environment. However, more of these outputs are more easily obtained by using fewer resources to produce more goods (Mankiw, 2007).
Limitations of GDP as a measure of economic well-being
The use of GDP as a measure of economic well-being has several limitations. First, it results in changes in quality of products by including new goods that replace older products. Second, it does not consider the leisure time or how hard people work to produce output; thus, likely to understate change in real income. Third, GDP does not recognize the underground economy (non-market production) involving cash transactions and barter trades conducted outside the recorded marketplaces (Mankiw, 2007). Fourth, GDP ignores the harmful side effects of goods (economic bads) like pollution in its statistics by counting them the same as goods, as well as GDP places no value on the environmental costs of the goods.
Reference
Mankiw, N. G. (2007). Principles of microeconomics. Mason, Ohio [u.a.: Thomson/South-Western. Read More
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