Lesson 6 - Limitations of GDP

Question 1

What are the 6 limitations of GDP?

Answer 1

Black market
Non-market activity
Environmental factors
Happiness
Sustainability
Balance of GDP

Question 2

Why is the black market a limitation of GDP?

Answer 2

Money is earned from illicit activities
Includes unreported income of tax avoiders

Question 3

What % of the UK economy does the black-market account for?

Answer 3

10%

Question 4

Why is non-market activity a limitation of GDP?

Answer 4

GDP misses non-market activity
E.G., Home production, voluntary work

Question 5

Why are environmental factors a limitation of GDP?

Answer 5

GDP poor at recognising environmental costs
Not adjusted for pollution costs

Question 6

With regards to environmental factors, what do some economists argue should exist?

Answer 6

Green GDP
Adjusted to account for environmental costs + damage

Question 7

Why is happiness a limitation of GDP?

Answer 7

Makes no adjustment for mental well-being
Goods + services do not determine happiness
Should consider; How hard people work, stress as a consequence, impacts on family life

Question 8

Why is sustainability a limitation of GDP?

Answer 8

Does not account for sustainability
May rise temporarily due to resource exploitation or misallocation of resources
Fast growth may lead to exploitation of scarce resource, causing short term spike but limiting future prospects

Question 9

Why is balance of GDP a limitation of GDP?

Answer 9

Spending composition of GDP can be very different
Some may apportion high volumes to education, others to the arms industry

Question 10

Which other factors can be used to measure wellbeing?

Answer 10

Income + income equality
Economic stability
Employment
Health
Education
Infrastructure
Civil society
Governance
Environment