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The opinion of economists have varied on this issue regarding the considerable of the GDP is the appropriate measure to understand the well-being of the nation. While most of the economists have relied on this economic indicator as the main determinant of the standard of living, the others have differed stating that the other intangible and tangible factors like education, health as well as ecological environment to be important factors as well. Simon Kuznets who framed the term GDP even warned that the measure is not an appropriate indicator of the well-being of the nation (Kuznets, 1934). Thus is clear that the GDP was never devised to measure the well-being of nations. With the occurrence of the Bretton Woods conference this measure started being used widely in most of the nations of the world since 1944. GDP as an economic indicator The Gross Domestic Product of a country is the sum of the goods and services of the country taken at the market value. In order to understand the concept of GDP it is important to know how the GDP of a nation is arrived at (Landefeld, 2008). There are a variety of ways in which the GDP of a country can be measured. The product approach measures GDP by summing the total production of all the enterprises during a definite span of time. Thus the value added of all the final products in a year minus the sum of the value added of the intermediate products gives the GDP of the economy. On the other hand, the expenditure approach considers the sum of the aggregate consumption expenditure, investment expenditure, government expenditure as well as the net exports of the economy. The circular flow diagram provides an idea about the income and expenditure flow in the economy that takes place involving the individuals, firms as well as the government. Therefore GDP measures the flow of the goods and the services that takes place in an economy. The income approach however calculates the sum of the total income of the individuals the firms as well as the government in the economy. From the various approaches it is clear that during the calculation of the GDP the monetary values are taken and hence no other intangible aspect could be captured by the GDP. In all these cases only the computation of the However in most cases it is considered that if the economic condition of the people improves the people of the economy would be better off. Thus it is not an ideal measure of the standard of living of the economy. Defects in GDP as a measure of the well-being of the economy The economic system is a subsystem of a larger system that drives the world. There are ecological, political as well as social systems which are intertwined. The effects of each of these systems influence each other and one cannot be thought of independently without thinking about the other. The economic system in a society can run only in connection with the other systems and depends on the other systems to a large extent. For example, in order to carry out the production in a factory system it is important to take the help of the natural resources as well as the human capital. Along with that the incorporation of the knowhow is also important. Hence the entire economic activity of production needs the intangible resources along with the tangible resources. ...Show more


Is Gross Domestic Product (GDP) a good measure of wealth and well-being? Contents Contents 2 Introduction 3 GDP as an economic indicator 3 Defects in GDP as a measure of the well-being of the economy 4 Subjective well-being of the nation 6 Alternative Measures of Economic wellbeing 6 Conclusion 7 References 9 Bibliography 10 Introduction The Gross Domestic Product of a country is the sum of the market values of all the goods and services that are produced during a given span of time…
Author : myrtlenitzsche
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