GDP (Gross Domestic Product) is the market value of all officially recognized final goods and services produced within a country during a given time period.
GDP, although used by all the countries in the world, is often criticized as unreliable and for good reason.
One limitation of GDP is that we can only measure macroeconomic growth or recession by comparing it against the objectives that were set by the government of a respective country. This means that objectives forgone will not be considered. For example, a lot of countries forgo the decision of balancing out the distribution of income. Even though equality is a very important macroeconomic goal, macroeconomic growth cannot be measured in this area because it was not a declared objective of the government.
Another limitation of GDP is that goals and objectives are often too vague. For example, one of the objective is to reduce the degree of inequality in the distribution of income. This is very vague because a lot of questions can arise from this. What is the optimum ‘degree of equality’? What is the optimum distribution of income? One of the most important questions (as stated in the article “Can Economic Performance be Measured and Evaluated?”) is what is degree of poverty is acceptable and how does a country best tackle it? All these questions can only be answered up to a certain extent and so GDP is unreliable.
Even though GDP is extremely unreliable, it is the only logical way to measure a country’s economic growth or recession. Other methods are either more unreliable or illogical. GDP measures national income and this is (in my opinion) is more logical than the other methods. I think this is why most countries use GDP because the alternatives are worse.
GDP, although used by all the countries in the world, is often criticized as unreliable and for good reason.
One limitation of GDP is that we can only measure macroeconomic growth or recession by comparing it against the objectives that were set by the government of a respective country. This means that objectives forgone will not be considered. For example, a lot of countries forgo the decision of balancing out the distribution of income. Even though equality is a very important macroeconomic goal, macroeconomic growth cannot be measured in this area because it was not a declared objective of the government.
Another limitation of GDP is that goals and objectives are often too vague. For example, one of the objective is to reduce the degree of inequality in the distribution of income. This is very vague because a lot of questions can arise from this. What is the optimum ‘degree of equality’? What is the optimum distribution of income? One of the most important questions (as stated in the article “Can Economic Performance be Measured and Evaluated?”) is what is degree of poverty is acceptable and how does a country best tackle it? All these questions can only be answered up to a certain extent and so GDP is unreliable.
Even though GDP is extremely unreliable, it is the only logical way to measure a country’s economic growth or recession. Other methods are either more unreliable or illogical. GDP measures national income and this is (in my opinion) is more logical than the other methods. I think this is why most countries use GDP because the alternatives are worse.