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Question
Write down some of the limitations of using GDP as an index of welfare of a country.
Write down some of the limitations of using GDP as an index of welfare of a country.
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Solution
Followings are the limitations of using GDP as an index of welfare of a country:
(i) With every increase in the level of GDP, distribution of GDP is getting more unequal, welfare level of the society may not rise.
(ii) The composition of GDP may not be welfare-oriented even when the level of GDP tends to rise.
(iii) Because of non monetary transactions GDP remains under estimated, and is therefore not a proper index of welfare.
(iv) Impact of externalities (positive or negative impact of activity) is not accounted in the index of social welfare in terms of GDP.
Followings are the limitations of using GDP as an index of welfare of a country:
(i) With every increase in the level of GDP, distribution of GDP is getting more unequal, welfare level of the society may not rise.
(ii) The composition of GDP may not be welfare-oriented even when the level of GDP tends to rise.
(iii) Because of non monetary transactions GDP remains under estimated, and is therefore not a proper index of welfare.
(iv) Impact of externalities (positive or negative impact of activity) is not accounted in the index of social welfare in terms of GDP.
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