GDP or GDP per capita is a common measure for a countrys sta

GDP (or GDP per capita) is a common measure for a country’s standard of living. Discuss the shortcomings of using GDP in this way.

Adhere to the following standards:

Your paper should be two or three pages in length, not including the title or references pages.

Solution

When an economy experiences an increase in national income in real terms, it is said that economic growth has taken place. When an economy experiences rise in welfare it implies social growth. The term welfare can be categorized into economic welfare and social welfare. If welfare is affected only by economic factors then it is economic welfare but when welfare is affected by economic as well as non-economic factors then it is called as social welfare. It means that social welfare means the total welfare of the society as a whole. Environmental pollution, land degradation, law & order situation etc. comes under non-economic factors. GDP at best can indicate economic welfare. For example, industrial growth increases GDP and consequently the economic welfare. But industrial growth may also lead to increase in pollution and consequently decrease the welfare.

Hence it can be concluded that per capital real GDP is not an adequate indicator of economic welfare due to the following reasons: