Discuss any two of the following three topics The concept of

Discuss any two of the following three topics. The concept of GDP is used by policy makers for many purposes that include keeping track of the growth of our economy and forecasting a recession; but it is also abused by some. Discuss some of the applications of GDP which may be considered improper use or abuse of the concept.

Solution

1. Concept of GDP:-

GDP is the market value of final goods and services produced with in domestice territory of a country during an accounting year. GDP is considered as index of welfare of people. The some of the applications of GDP which may be considered as improper use or abuse of this concept are as follows:-

a) High population growth rate:- If the rate of growth of real GDP is less than the rate of population growth, it may reduce the welfare of the people in totality.

b) Non-monetary transactions or exchange:- GDP reamains under estimated when non-monetary transactions like services of housewife, barter exchanges, enjoyment from hobbies like painting, gardening etc. increases the welfare and are not included in measuring GDP.

c) Composition of GDP:- GDP will not increase economic welfare if rise in GDP is bacause of more production of defence/war goods like bombs, tanks, weapons etc.

d) Other:- GDP can not be taken as adequate index due to Externalities, Different products contribute differently or in contradictory way etc.

2) \"Even though the great recession officially ended, the unemployment rate is sill considered high.\" The reasons of high unemployment rate are as follows:-

i) Population explosion:- The rapid growth of population has been major cause of increasing unemployment in the country.

ii) Slow rate of economic growth:- The size of employment in any country depends considerably on the level of development. The actual growth rate always lies far below the rate targeted by the nation. Due to slow rate of economic growth, Unemployment rate is very high.

iii) Underdeveloped Agriculture:- Heavy pressure of population on land and the primitive methods of agricultural operations are responsible for massive rural unemployment and under-employment in the country.

iv) Low capital formation:- Low rate of capital formation hampered the growth potentialities in the agricultural and industrial sectors. Consequently, job-creation capabilities of both the sectors have been affected adversely.

v) Other reasons for High Unemployment rate:-

a) Inadequate employment planning.

b) Slow growth of Industry

c) Decline of cottage and small scale industry

d) Faulty planning etc.