GDP

Question 1

GDP Eval.

Answer 1

Pros
- Best measure of growth

Cons
- Doesn’t take into account shadow economy which could greatly impact GDP. e.g. In 1990s Colombia Escobar’s drug trade amassed almost $30billion. Inevitably this would have trickled into many Colombians, leading to them having far more disposable income and better living standards than GDP per capita would suggest

• Doesn’t take into account income distribution. e.g. Qatar top10 for GDP per capita but extreme inequality, many in relative poverty
• Doesn’t account for hours worked. e.g. France & UK have similar GDP per capita but France work 4-hour week, meaning living standards higher

Better to adjust GDP to price level, Purchasing Power Parity, allows for better comparisons between nations

Question 2

Real GDP Formula

Answer 2

(GDP x Base Year Index) / Index for current year