Two of the most frequent measu
Two of the most frequent measures of economic activity we see inthe news are GDP and stock market performance. What are somedownsides associated with focusing on these measures whenevaluating the economy’s health?
Answer:
Okay, GDP refers to Gross Domestic Product which shows the finalvalue of goods and services produced within a country during aparticular year. So, GDP basically reflects four componentsConsumption, Investment, Government Sector, and Net Exports of anycountry.
Stock market performance also reflects the country’s health andhow the shareholders are gaining or loosing.
Drawbacks of using GDP for evaluating economy’s health:
- Gdp does not account for self production done by the farmers orany household. For example, if you are growing any vegetable inyour garden area, then it is not a part of GDP. As GDP cant becalculated for each household such self production activities.
- GDP ignores non monetary values or services of any housewiveswhich boost the economy. Like, a mother teacher her child at homeis not accounted under GDP calculation.
- Externalities like if some production factory is causingpollution in the nearby community, it acts as a negativeexternality on the people living in that area. In terms of bad airquality or any air bourne disease. GDP does not account suchactivities.
- GDP never reflects the inequalities in income distributionamong rich and poor section of the society.
Drawbacks of stock market on country’s health:
1. Stock market is only for those who are a part of it and notfor others who do not invest in them.
2. It does not reflect a permanent picture of country’s health,as it keeps on fluctuating a lot.
3. Stock market affect business investments and shatters theconfidence of investors in any country’s economy.
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