Discuss whether GDP is a good measure of economic growth (6)
GDP (gross domestic product) is a measure of the total output of a country's
economic activity. It is a figure composed of Government spending, exports-
imports, consumption and investment.
Reasons why GDP is a good measure of economic growth is that it is relatively
easy to calculate, reliably demonstrates the growth in output of an economy and
is easily comparable to other countries. This means that it is easier for policy
makers to make judgements on the economic state of the country (or region) and
target policies to improve economic growth or overall welfare.
One reason GDP is not a good measure is that when transformed into other
statistics (e.g. GDP/CAPITA) it does not take into account Inequality in economic
growth as it is a cumulative measure. This means that while one area of a region
may be growing quickly, another may be experiencing economic decline. this is
not specified in the classic GDP measure and means that regions may be
overlooked when economic policies are made. In addition, GDP per capita does
not factor in elites in a population. For example, if a country has high inequality
(represented by a high Gini coefficient), a small fraction of the population may
hold an income share that is excessively greater than average. This means that
while it may appear that the economy is growing, the growth may be experienced
by only a small fraction of society.
Another reason why GDP can be considered a poor measure of economic growth
is because it is a cumulative statistic. This means that size will vary based on
population. For example, a country with a much smaller population is likely to
have a much smaller GDP. Therefore, it is better to use GDP per capita as a
measure of economic growth and thus as a proxy for living standards.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller eli3. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $3.94. You're not tied to anything after your purchase.
