Explain 'non-monetary exchanges' as a limitation of using gross domestic product as an index of welfare of a country.
Explain 'non-monetary exchanges' as a limitation of using gross domestic product as an index of welfare of a country.
GDP does not take into account those transactions that are not expressed in monetary terms. This is a major limitation of GDP as an index of welfare of a country as there are many transactions which although are non-monetary but add to the growth and development of the nation. Many non-monetary activities in the economy done out of love and affection are not evaluated in monetary terms due to lack of authentic data. Thus, non-market transactions like services of housewives, services of social workers etc., which increase economic welfare are not included in measurement of GDP. Therefore, GDP underestimates welfare and may not reflect the well-being of the country.
GDP does not take into account those transactions that are not expressed in monetary terms. This is a major limitation of GDP as an index of welfare of a country as there are many transactions which although are non-monetary but add to the growth and development of the nation. Many non-monetary activities in the economy done out of love and affection are not evaluated in monetary terms due to lack of authentic data. Thus, non-market transactions like services of housewives, services of social workers etc., which increase economic welfare are not included in measurement of GDP. Therefore, GDP underestimates welfare and may not reflect the well-being of the country.
