Question

Gross Domestic Product was designed as a measure of economic activity, specifically a measure of national production. Despite this intent, GDP is widely interpreted as a measure of economic welfare or standard of living (when measured in per capita terms). What are the shortcomings of using GDP as a measure of economic welfare? What would you like to add to (or subtract from) GDP to make it a better reflection of how well people are doing in a nation?

Answer 1

Answer:  GDP is used to measure a society’s standard of living, but it is not a thorough indicator since it does not directly account for leisure, standard of environment , levels of health ,education and security ,inequality etc. i.e. The  values that society may place on certain types of output.  

The short coming with GDP is that it does not ponder upon the true economic welfare in the society. To analyze it's limitations better, we will ponder upon several factors that are not accounted for in GDP and are listed above.

GDP does not account for leisure time. GDP includes what governments and other agencies spend on healthcare, education and security but it does not include actual levels of  health and learning.

GDP has nothing to list about inequality in society. For example, when GDP per capita increase by 17%, it could directly or indirectly mean that GDP for everyone in the society rose by 17% or it could eventually state that GDP of some class rose more while the GDP of others class has declined.

In such cases we could always ponder upon several other useful and relative key terms such as Human Development Index (HDI) while also analyzing GDP.