Question

Discuss two reasons for NOT considering GDP a true indicator of economic welfare.

Answer 1

1. Non-market activities are excluded from GDP. Only the things and services that are bought and sold in the market are included. It doesn’t account for unpaid work, such as housework, volunteering, or caring for others. Even though these actions make society better in big ways, they are not counted in the GDP.
2. Environmental Degradation and Negative Externalities: The things that drive economic growth may also pollute, cut down trees, and deplete resources. Damage to the environment can lower the quality of life even as GDP goes up, so it’s not a perfect way to measure economic well-being.