Is GDP a good measure of economic activity and well being Give reasons for your answer. What particular problems arise when comparing GDP across countries - Essay Example

Running Head: GDP GDP as A Good Measure of Economic Activity and Well Being of the of the GDP as A Good Measure of Economic Activity and Well Being Introduction Gross Domestic Product, generally termed as GDP, is the most common and widely used as a measure of a countrys economic activity. On the other hand, it has restrictions as a measure of societys well-being and of peoples measurable standards of living. The GDP was developed for a war economy by Simon Kuznets. It was not his intention that it be used beyond this scope.

The GDP as a modest accumulation machine became the GDP as a most common measure of economic activity and growth. After identifying the impacts, Kuznets tried his best to point out that GDP is not a true measure of a societys well-being and highlighted that in his most of the researches that it should not be interpreted as one of the measures of economic activity. It underlined that GDP is only an unrefined measure of economic and market activity, of money varying hands. It does not justify the immediate or prolong effects, this money transmission has on both society or the surroundings.

For instance, critical economic utilities accomplished in the household and zones go exclusively unrecognized. As a result, GDP covers the collapse of the social arrangement and the natural environment on which the economy and wellbeing it eventually be contingent. This implies that GDP actually portrays such collapses as economic gain. For instance, economic activity due to war, crime, pollution or addictions, all contribute to a positive GDP that depicts a false picture of economic activity.

This paper identifies whether GDP is a good measure of economic activity and well-being and issues and problems that may arise when GDP is compared across countries. Discussion By definition, growth is measured by the dynamics of index for gross value added (GVA), which in practice commonly used gross domestic product (GDP). Given the role of economic growth as a measure of progress achieved on each economy or region could be reasonably aware and interested in nature this indicator in terms of its scope, components, analytical opportunities, etc.

(Allin, 2007, 46). Statistical indicators and GDP in particular are very important in the analysis and formation of policies aimed at speeding up the public progress. GDP is widely used indicator (international standards) measurement of economic activity and its calculation in which restrictions and conventions are admitted, needs refinement. GDP expresses very slight about the principal Quality of Life in the economy (Brooks, 2008, 311). There is no account for safety factors in GDP like forced labour, crime rate, lack of health care, or warfare activity.

It does not deliver information regarding social fits and belongings (Ark, McGuckin, 1999, 33; Williams, 2002, 429; Crafts, 1997, 75). There is no place to include any information about gender, race or any kind of discrimination and its impact on individual’s capability to contribute towards economic activity (Miller, 2008, 28). There is no way to mention labour forces working hours or leisureliness activities, not it displays any impact of environment or political upsets. In short, GDP does not expresses anything related to income distribution that is one of the key factors in driving the economic market (Easterlin, 1995, 35).

With all these considerations, GDP is still a measure that has become the most commonly used measure and often identified indicator for measuring the economic activity of a country. It is accepted that GDP is a comparatively accurate and valuable measure to record changes in domestic economic activity, and therefore, it is significant for distinguishing changes in economic activity over time. (Miller, 2008, 29) The fundamental problems of counting on GDP as a measure of economic activity are apprehended in this definition: “GDP is a measure of production in terms of market prices and an indicator of economic activity.

It is not a measure of the nation’s overall health.” (Miller, 2008, 29) However, it remains to be stated and esteemed at the peak levels of strategy making (Frey, Stutzer, 2004, 15). The formal composition of GDP is of the form: GDP = C + I + G + NX … Equation 1 In the equation 1, “C” indicates the consumption factor that comprises of all the expenditures and expenses made by households and individuals for the satisfaction of needs and wants of life. “I” in equation 1 represents the factor of Investment which implies all the investments that are made by industries, fixed and capital equipment’s and inventory.

“G” in equation 1 represents the factor of government expenditures and payments, which include federal, local and state level purchases of goods and services by government for smooth run. The last factor “NX” represents the net exports made in an economy to other, which can be figured by subtracting imports from exports. When these all factors are added presents a picture of GDP of an economy (Pont, 2008, 17; Sen, 1979, 463; Arba, 2006, 79). If the value comes out to be in a surplus when compared with previous years summed value, the economy is considered to be flourishing and the GDP is interpreted as a healthy economic indicator (Doyle, Nathan, 2001, 49; Gordon, 2003, 342; Dimitrova, Stoyko, 2008, 3; Radilov, 2002, 67; Todorov, 1997, 87).

Considering the conformation of GDP tells us how much significance has been traded and by whom. It does not tell us how the significance for the conversation was created or the longer-term insinuations on prospect exchanges. This passes us to the second dispute that is none of the constituents of GDP take into account the mark to which the economic activity was backed through obligations versus equity (Minsky, 1993, 146; Heston, 1994, 29). It is significant to define the degree to which any obligation, which is a measure of GDP, has the capability to produce its own return in order to recompense the standard and interest accountability characterized by the obligations (Minsky, 1993, 148).

In the analysis of GDP as an indicator of economic activity and wellbeing, it is then conceivable to conclude what economists refer as the flimsiness of the economy due to obligation, and therefore a more factual consideration of the economic activities (Davies, Fender, Williams, 2010, 16; Jones, Annan, Shah, 2009, 31). Conclusions In conclusion, we can say that a growing GDP is not symbolic of a healthy economy in all circumstances. If more work had been placed on scrutinizing the constituent environment and the foundation of GDP, the decline defying us might not have been so abrupt, nor required the level of administrative involvement, it now looks it is going to accept.

Far from being a controller to economic activity and well-being, GDP purposes as a dysfunctional extent. Even economists and analysts are not found to be happy with the approach GDP adds things up. Around 400 of them, including Nobel laureates, made a joint statement describe GDP as “an inadequate and misleading measure of economic activity". They urged policy makers, economists and international agencies to publicly recognize its inadequacies and embrace new indicators of growth. On the other hand, it still has many powerful supporters who benefit from its use.

But there is nothing to prevent other new measures being mobilised as a viable alternative at community or local government level, an alternative that takes into account the complex balance of our environmental and social ecosystems. If we choose to grow our wealth rather than our money via GDP, we can create a country that is truly vibrant, where growth is sustainable and which can boast one of the highest qualities of life in the world. References Allin, P. (2007). Measuring societal wellbeing, Economic and Labour Market Review, Vol 1, No 10, pp 46-52 Arba, Y.(2006). ‘The system of material product: retrospective’.

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